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The upcoming trading week will revolve around American inflation. In the United States, data will be published on the growth of the Consumer Price Index (CPI), the Producer Price Index (PPI), and the Consumer Sentiment Index calculated by the University of Michigan.
Of course, this is not an exhaustive list of macroeconomic reports, but these releases will stand out.
The trading week will begin with inflation data, not from the U.S. but from China. However, this report could still provoke volatility in the EUR/USD pair. Judging by the last two releases (March and April), China's economy is slipping into deflation, "thanks" to the new tariffs introduced by Donald Trump. China has not been able (and clearly won't be able in the near future) to replace American demand for its goods with domestic or other markets. As a result, goods that used to be shipped to the U.S. are gathering dust in warehouses, creating downward pressure on prices. (Incidentally, the downward inflation trend in the Eurozone is also partly due to this factor.) Added to that is weak domestic consumer demand in China.
According to forecasts, China's CPI is expected to remain in negative territory in May at -0.2%. Concerns about the world's second-largest economy will affect overall market sentiment. However, demand for the dollar is unlikely to increase because the U.S. economy also suffers from tariffs. As the world's largest net importer, the U.S. faces inflationary pressures amid an overall economic slowdown. Therefore, if China's report meets forecasts or comes in weaker, EUR/USD buyers will likely gain strength.
Tuesday's economic calendar does not feature many significant events that could impact the EUR/USD pair. The Sentix Investor Confidence Index will be published during the European session, reflecting investors' trust in the Eurozone economy. Since March 2022, it has been in negative territory, signaling investor pessimism. In May, it rose to -8.1 from -19.5. In June, it is expected to "rise" further to -6.0.
The NFIB Small Business Optimism Index will be published during the American session. This secondary macroeconomic indicator has declined for four months, reaching 95.8 in April. A slight uptick to 95.9 is expected in May. However, if the index continues to decline contrary to forecasts, it will create additional background pressure on the dollar amid a quiet economic calendar.
Probably the most important day of the week. Attention will focus on the U.S. CPI report released at the start of the American trading session.
According to most analysts, the annual CPI will accelerate to 2.5%. On the one hand, this is a modest increase from the previous month's 2.3%. On the other hand, the index had been declining for three months after peaking at 3% in January. The downward trend continued: 2.8% in February, 2.4% in March, and 2.3% in April. Thus, even a slight acceleration could trigger intense volatility in the EUR/USD pair.
The Core CPI, excluding food and energy, is also expected to rise to 2.9% after two months at 2.8%.
In theory, this result should support the dollar by pushing back the timing of the Federal Reserve's rate cut. However, the dollar is unlikely to benefit under current circumstances because a rising CPI may signal growing stagflation risks. The ISM Manufacturing PMI for May was 48.5, indicating continued contraction. Despite relatively decent Non-Farm Payrolls (though a 139K increase isn't exactly substantial), fears of a U.S. economic slowdown in Q2 remain. Therefore, even if CPI exceeds forecasts, it will likely be interpreted against the greenback.
On Thursday, the U.S. will release another key inflation indicator—the PPI. Forecasts suggest the PPI will accelerate to 2.6% from 2.4%. However, the Core PPI, which has been declining for three months, is expected to further weaken to 3.0% in May from 3.1% in April.
The dollar will face additional pressure if the PPI comes in strong and the CPI meets or exceeds forecasts.
The University of Michigan's Consumer Sentiment Index will be published on June 13, the final trading day of the week. It had been falling for four months, reaching 52.2 in May. A slight increase to 52.5 is forecast for June. For dollar bulls, the index must not continue its downward trend.
Particular emphasis will also be placed on the University of Michigan's inflation expectations index. In April, this indicator jumped to 6.6% (the highest since 1981) and remained there in May. If inflation expectations rise again in June (no forecasts available yet), dollar bulls will react negatively due to renewed stagflation concerns.
Inflation reports could pressure the dollar if they indicate that both CPI and PPI are rising, especially against a backdrop of weakening ISM indices in manufacturing and services. Traders will also keep an eye on news about trade negotiations, though significant progress in U.S.-China and U.S.-EU talks is unlikely in the coming days.
Tensions between Donald Trump and Elon Musk could also influence EUR/USD, as escalating public conflict between these "giants" would negatively impact the dollar.
Technically, in the D1 timeframe, EUR/USD remains between the middle and upper Bollinger Bands and, above all, Ichimoku lines, which form a bullish "Parade of Lines" signal. All this favors long positions. Targets for the upward movement are 1.1450 (upper Bollinger Band on H4) and 1.1500 (upper Bollinger Band on D1).
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