Weekly EUR/USD outlook: US CPI and ECB in focus after strong jobs data

This weekly EUR/USD outlook was written before the end of European session on Friday and was therefore subject to some volatility during the NY session. At the time of writing, the US dollar looked set to finish the week on a strong footing after a much stronger-than-expected labour market report prompted investors to reassess the outlook for Federal Reserve policy, sending yields higher. The EUR/USD was easing down to 1.1500 area after relentless post-NFP selling pressure. Looking ahead, we have US CPI and ECB rate decisions looming in the week ahead. Traders are also eying a potential deal between the US and Iran to open the Strait of Hormuz, which explains why oil prices fell more than 3% at the time of writing.

 

Robust payrolls data reinforces dollar strength

 

Non-farm payrolls rose by 172,000 in May, comfortably ahead of expectations for 85,000, while revisions added a further 93,000 jobs to the previous two months of data.

 

The unemployment rate held steady at 4.3%, matching its lowest level since August and remaining well below the long-term average of 5.7%. Meanwhile, annual wage growth came in at 3.4%, suggesting that while inflationary pressures from the labour market have moderated, demand for workers remains resilient.

 

Taken together, the figures point to a labour market that has regained momentum during the first half of 2026, reducing concerns about an imminent slowdown in economic activity.

 

Markets reacted swiftly. Traders now fully price in a quarter-point Federal Reserve rate increase by year-end, a notable shift from expectations just a few weeks ago. Treasury yields moved higher, the dollar strengthened across the board, and rate-sensitive assets came under pressure.

 

EUR/USD breaks trend support as US rate expectations shift

 

The repricing of Fed expectations caused the dollar to rally, and this weighed heavily on assets like gold and the euro. The, EUR/USD took a plunge below the 1.16 level, with the widening divergence between US and European interest rate expectations helping to support the greenback.

 

 

The technical breakdown means 1.1500 and possibly the March low of 1.1410 could be hit next week, barring a plunge in oil prices – say as a result of a deal between the US and Iran to re-open the Strait of Hormuz.

 

Resistance is now seen around 1.1600 area, followed by 1.1670 and then 1.1700.

 

While the euro faces its own set of catalysts next week, the immediate driver remains the market’s renewed confidence in the strength of the US economy.

 

EUR/USD outlook: inflation data and ECB take centre stage

 

Attention now turns to US consumer price inflation on Wednesday. After surprising markets with a 3.8% annual reading in April, inflation is expected to accelerate further to 4.2% in May, reflecting the recent surge in energy prices.

 

The release could prove pivotal for market sentiment. A reading above consensus would likely reinforce expectations that the Federal Reserve may need to keep policy restrictive for longer, potentially extending the dollar’s recent gains. Conversely, any downside surprise could prompt investors to scale back some of the hawkish pricing that emerged following the payrolls report.

 

On Thursday, attention shifts to Frankfurt where the European Central Bank is expected to deliver a widely anticipated 25 basis point rate increase. The decision itself is unlikely to surprise markets; instead, investors will focus on President Lagarde’s guidance regarding the path beyond June.

 

With inflation still proving stubborn across parts of the eurozone, policymakers may be reluctant to signal an imminent pause. Any indication that further tightening remains on the table could offer modest support to the EUR/USD outlook, although the currency’s direction will also depend heavily on developments between the United States and Iran.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R