EUR/USD Outlook: Inflation, Fed Caution & Eurozone Risks

EUR/USD Balances Inflation Pressure, Fed Caution, and Eurozone Weakness

The EUR/USD pair remains in the spotlight as traders juggle strong US inflation data, cautious Federal Reserve expectations, and a sluggish Eurozone economy. By Friday’s European session, the euro managed a modest rebound but continued to struggle under resistance near 1.1725–1.1730, a zone that has repeatedly capped upside moves since early July.

US Inflation Data Raises Policy Questions

The July Producer Price Index (PPI) came in much hotter than expected. Headline PPI rose 0.9% month-on-month and 3.3% year-on-year, marking the largest 12-month increase since February 2025. Core PPI, which strips out food and energy, also surprised to the upside at +0.9% m/m and +3.7% y/y.

This inflation spike prompted markets to dial back expectations for a larger September rate cut. According to CME FedWatch, the probability of a 50-basis-point cut fell sharply, while odds of a smaller 25-basis-point reduction remain dominant at around 85%. Supporting the Fed’s cautious stance, weekly initial jobless claims dipped to 224,000, easing concerns about a weakening labor market.

For the dollar, the outlook remains mixed: stronger inflation curbs the scope for aggressive easing, yet risk appetite tied to at least some level of Fed accommodation has limited the greenback’s upside momentum.

Eurozone Growth Shows Little Spark

Across the Atlantic, Eurozone data offered little optimism. Revised second-quarter GDP confirmed growth of just 0.1% q/q and 1.4% y/y, underscoring the region’s weak recovery. Industrial output for June fell 1.3% m/m, worse than expectations of a 1% decline, though the annual figure managed a slight +0.2% y/y rise.

Employment trends were equally soft, with jobs expanding only 0.1% on the quarter and 0.7% y/y. Together, these numbers highlight the lack of economic momentum and reinforce the euro’s downside pressures.

Geopolitics and Consumer Data in Focus

Beyond the data, geopolitics remain a potential catalyst. Markets are still digesting the outcome of President Donald Trump’s meeting with Russia’s Vladimir Putin in Alaska. While no breakthrough emerged, even a hint of de-escalation in the Ukraine conflict could reduce Europe’s energy risk premium and provide some relief for the euro.

Meanwhile, US consumer spending continues to be a key barometer. The July retail sales report, released last week, showed +0.5% m/m growth (0.3% excluding autos), underscoring the resilience of US demand despite tariff-related price pressures.

Technical Picture: Resistance Holds at 1.1730

From a chart perspective, EUR/USD remains boxed in below the 1.1725–1.1730 resistance zone, which has consistently capped gains. The Relative Strength Index (RSI) on the four-hour chart sits near neutral, but bearish divergence warns of fading momentum.

On the downside, initial support rests at 1.1590, followed by 1.1530 and 1.1460. A break higher above 1.1735 would mark a bullish shift, opening the door to 1.1789 and 1.1830.

At the time of writing, the pair trades close to 1.1707, reflecting the ongoing tug-of-war between Eurozone weakness and shifting US policy expectations.

EUR/USD remains finely balanced between sticky US inflation, the Fed’s cautious policy stance, and the Eurozone’s fragile growth outlook. Resistance near 1.1730 is still the line in the sand for bulls, while supports at 1.1590 and below could attract sellers if momentum turns. With upcoming geopolitical developments and consumer data in focus, volatility is likely to stay elevated.

For traders looking to navigate these uncertain conditions, independent analysts note that regulated platforms such as Ultima Markets provide the tools, insights, and secure environment needed to trade major pairs like EUR/USD with confidence. In markets where every shift in data or policy can spark opportunity, having access to a transparent and trusted broker can make the difference between reacting and staying ahead.