EUR/USD: US inflation will determine everything

EUR/USD opens the week around 1.1433. Investors continue to assess the situation in the Middle East, where uncertainty remains high. Oil prices corrected lower following a sharp rise at the start of the week, after reports that the United States and Iran intend to continue peace negotiations.

At the same time, fresh mutual strikes between the parties have heightened fears that the conflict could once again enter an escalation phase, leaving the prospects for maintaining the ceasefire uncertain.

Renewed hostilities have brought fears of a new inflation wave back to the market, supporting expectations of further Federal Reserve monetary tightening. Markets currently estimate the probability of a rate hike in September at approximately 62%, up from 58% a week earlier, though this figure exceeded 70% mid-week.

Additional attention has been drawn to comments from New York Federal Reserve President John Williams, who noted that one of the key drivers of inflationary pressure in the United States remains demand growth, linked to developments in artificial intelligence technology.

The main event of the week will be the release of the US June consumer price index (CPI). Higher-than-expected figures would reinforce expectations that the Fed will maintain a tight policy stance, potentially supporting the dollar. Conversely, weaker-than-forecast CPI data would increase pressure on the US currency, as markets would begin to price in a softer monetary policy trajectory once again

Technical analysis

On the H4 chart of EUR/USD, the market has formed a consolidation range around the 1.1410 level, currently extending down to 1.1388 and up to 1.1410. A consolidation range around this level is practically complete. An upside breakout would suggest a corrective wave developing to 1.1450, followed by a decline to 1.1260. A direct downside breakout would open potential for a downward wave to 1.1260. Technically, this scenario is confirmed by the MACD indicator-its signal line is above zero but pointing strictly downwards, reflecting continued bearish momentum with the potential for the trend to continue lower.

On the H1 chart, the market has completed the next growth wave to the 1.1412 level. A consolidation range is currently forming below this level. Today, a range expansion down to 1.1366 and up to 1.1400 is expected, followed by a decline to 1.1260. Technically, this scenario is confirmed by the Stochastic oscillator-its signal line is above 50 and pointing strictly up to 80, before a subsequent decline to 20.

Conclusion

EUR/USD is treading water at the start of the week as markets await key US inflation data that could set the tone for the Federal Reserve's policy path. Geopolitical uncertainty in the Middle East remains elevated, with conflicting signals-renewed peace talks on one hand and fresh military strikes on the other-keeping investors cautious. Inflation expectations have been reinforced by escalating tensions, pushing September rate hike probabilities higher despite a mid-week dip. Comments from NY Fed's Williams on AI-driven demand as an inflation factor have added another dimension to the debate. All eyes are now on Wednesday's CPI release: a stronger print could boost the dollar, while a weaker outcome would ease pressure on the euro. Technically, the bearish outlook for EUR/USD remains intact, with downside potential towards 1.1260 in the medium term.