EUR/USD Weekly Outlook: Inflation Data and Geopolitical Risks

Weekly Market Overview

The EUR/USD pair enters the week influenced by a combination of critical US macroeconomic data and ongoing geopolitical developments. Key focus areas include April US inflation figures, US retail sales, and diplomatic efforts concerning the Iran conflict. Additionally, markets are monitoring the US Senate's confirmation process for Kevin Warsh as the new Federal Reserve head.

Macroeconomic Calendar Highlights

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Monday begins with China’s Consumer Price Index (CPI), which is forecasted to show a decline to 0.9% due to persistent deflationary pressures and weak domestic demand. A reading below 0.8% may bolster the US dollar as risk aversion increases. Tuesday features Germany’s ZEW business sentiment indices, where analysts anticipate continued weakness, followed by the highly anticipated US April CPI report. If core inflation approaches the 3% threshold, expectations for Federal Reserve monetary easing will likely diminish, putting downward pressure on EUR/USD.

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Wednesday’s schedule includes the second estimate of Eurozone GDP for the first quarter, though significant market movement is unlikely unless key internal components undergo major revisions. The US Producer Price Index (PPI) will also be released; while a secondary indicator, it serves to confirm inflationary trends established by the CPI, potentially amplifying existing market momentum. Thursday’s focus shifts to US retail sales and weekly unemployment claims, both essential for gauging the resilience of the American consumer and labor market.

Geopolitical Factors and Leadership Changes

Geopolitics remain a dominant driver, specifically the status of US-Iran negotiations. Reports of potential face-to-face talks in Islamabad suggest a possible de-escalation, which could improve risk sentiment and support EUR/USD upside. Conversely, any signs of diplomatic failure will likely reinforce safe-haven demand for the US dollar.

Finally, the Senate vote on Kevin Warsh’s confirmation to lead the Federal Reserve is scheduled for the week of May 11. While his confirmation is widely expected by the market, investors are shifting their focus toward his future policy rhetoric. His initial statements as Fed Chair will be the primary catalyst for long-term sentiment shifts regarding US monetary policy.

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