EUR/USD Weekly Forecast: US inflation and war doldrums to keep shaping market’s mood

A dull week ends with the EUR/USD pair surging to a fresh multi-week high, trading around 1.1560 ahead of the close. Optimism about an end to the Middle East conflict dominated the headlines throughout the first half of the week, only to be followed by the usual delays and diluted hopes.

War headlines keep shaping sentiment

United States (US) President Donald Trump kept repeating throughout the week that he believed that the war with Iran would be over “soon.” Market players, however, believe the ongoing pause in the Middle East crisis has more to do with reports suggesting the US Army is running out of highly accurate long-range missiles after its five-month war with Iran.

Also, Iran’s chief negotiator Mohammad Bagher Ghalibaf accused Trump of staging “theater diplomacy,” accusing the US of bullying and breaking promises. Tehran presented a plan on how to manage the Strait of Hormuz, which includes blocking the critical passage to US and Israeli ships. Traffic through the critical passage remains restrained, while skirmishes between different Middle East countries continue.

On a positive note, Oil prices remained within familiar levels, with the barrel of West Texas Intermediate (WTI) crude trading around $77 as the week comes to an end.

United States weak labor market?

Markets also took note of the US labor market health, with soft readings coupled with persistent inflation-related concerns weighing on the US Dollar (USD). ISM published the July Purchasing Managers’ Index, which showed business activity in the country remained in expansionary territory, with the Manufacturing Index printing at 55.6, and the Services PMI climbing to 54.1. The reports, however, also showed that the Price Paid Indexes linked to both sectors came in higher than anticipated and above 70, hinting at persistent inflationary pressures.

Regarding employment figures, JOLTS Job Openings edged modestly lower in June, although hiring remained unchanged. The ADP Employment Change survey showed that the private sector added measly 44K new jobs in July, down from the 95K previous and the expected 70K, while the Challenger Job Cuts report showed that US-based employers announced 33,429 cuts in July, down from the 45,849 registered in June.

Finally, the Nonfarm Payrolls (NFP) report released on Friday showed that the country lost 23K jobs in July while the June reading was downwardly revised to measly 20K from the original estimate of 57K. On a positive note, however, the Unemployment Rate shrank to 4.1%, its lowest in over a year, although the labor force Participation Rate also eased a tad, to 61.4% from the previous 61.5%.

Euro lacking life of its own

Financial markets are all about sentiment and EUR/USD moved accordingly to USD strength/weakness, with the shared currency lacking life of its own.

Data from the Union was far from encouraging: Retail Sales in Germany fell 0.2% in June vs the previous 2.1% advance, while the Eurozone figure for the same month came in at -0.3%, down from the 0.4% advance posted in May. Also, the bloc Producer Price Index (PPI) rose 4.6% in the year to June as expected, down from the previous 5.9%.

The Euro was unable to attract buyers despite European Central Bank (ECB) President Christine Lagarde warning that surging Oil prices could shape the September rate decision, hinting at an interest rate hike at the next meeting. Indeed, data supports the case for another hike, as euro area annual inflation is expected to be 2.9% in July 2026, up from 2.8% in June according to a flash estimate from Eurostat, the statistical office of the European Union.

What’s next in the docket

Inflation takes center stage in the upcoming days, as the US will release the July Consumer Price Index (CPI) on Wednesday. Annual inflation, as measured by the CPI, is foreseen at 3.4%, slightly below the 3.5% posted in June. On the same day, Germany will unveil the final reading of the July Harmonized Index of Consumer Prices (HICP), while the US will publish the July Producer Price Index (PPI) on Thursday, previously at 5.5%. Friday will bring the first revision of the Eurozone Q2 Gross Domestic Product (GDP), US Retail Sales and the preliminary estimate of the July Michigan Consumer Sentiment Index.

And of course, the focus will remain on Middle East developments and how Oil Prices react to headlines.

EUR/USD Technical Outlook:

The EUR/USD pair turned bullish, according to technical readings in the daily chart, although it still faces some barriers before confirming a steeper advance. The pair holds above the 20-day Simple Moving Average (SMA), which advances to 1.1453, but remains below the 100-day SMA at 1.1569 and the 200-day SMA at 1.1629, both flat. The 14-period Relative Strength Index (RSI) indicator aims north at 62, while the Momentum indicator also advances above its midline, suggesting ongoing bullish pressure despite the pair struggling to decisively reclaim its heavier moving averages overhead.

In the weekly chart, EUR/USD trades just under the 20-week SMA at 1.1566, which caps the upside and keeps the near-term tone neutral. The pair remains above both the 100-week SMA at 1.1316 and the 200-week SMA at 1.1041, suggesting a broadly constructive medium-term backdrop even as near-term momentum stalls. The Momentum indicator remains below its midline, while the RSI hovers near the 50 line, suggesting a lack of clear directional pressure and favoring consolidation over trend extension for now.

On the topside, initial resistance is located at the 100-day SMA at 1.1569, with a stronger barrier at the 200-day SMA near 1.1629, where sellers could reassert control if tested. On the downside, immediate support is provided by the 20-day SMA at 1.1453, and a daily close back under this short-term average would hint at fading upside momentum and open the door for a deeper pullback within the broader range.

(The technical analysis of this story was written with the help of an AI tool. Know more.)