The "Iranian case" and US inflation are key fundamental themes that will determine the direction of the EUR/USD currency pair in the coming week. Traders will also focus on other macroeconomic releases — the ZEW indices, the Eurozone GDP growth report, and data on retail sales in the United States. Additionally, the US Senate is set to conduct crucial votes regarding the confirmation of Kevin Warsh as the head of the Federal Reserve.
Inflation data from China will be the first significant trigger of the week. On Monday, China will publish the Consumer Price Index (CPI), one of the key indicators reflecting domestic demand in the world's second-largest economy. After a spike to 1.3% in February (a two-year high), the figure slowed to 1.0% in March, falling short of forecasted values.
It appears that in April the CPI will also show a downward trend: according to most experts' forecasts, the figure will come in at 0.9% amid sluggish consumer demand, the ongoing real estate crisis, and persistent deflationary pressures across several sectors of the Chinese economy. Additionally, by April, the seasonal Lunar New Year price spike is generally fully dissipated. If the CPI in China comes in below 0.8%, such an outcome could indirectly support the US dollar by boosting risk-averse sentiment.
During the European session on Tuesday, Germany will publish the ZEW indices. Recall that in April, the business sentiment index sharply declined to -17 points, marking its lowest level since the end of 2022. A similar dynamic was observed in the Eurozone indicator, which fell to -20.4 points. The reasons are evident: prolonged conflict in the Middle East, rising energy prices, and deteriorating prospects for European industry.
Most analysts believe pessimistic sentiment will only intensify this month amid high energy prices, weak domestic demand, and declining consumer confidence. The German ZEW business sentiment index is expected to come in at -19.1, while the Eurozone index is forecasted at -21.6. However, certain support for expectations may stem from the resilience of the European labor market, hopes for an easing of European Central Bank policy in the second half of the year, and the gradual adaptation of businesses to external shocks. Additionally, the diplomatic process between the US and Iran may play a role. Therefore, one cannot rule out a moderate recovery of the indices after the April slump. If the ZEW indices come out in positive territory, the euro will receive substantial support—especially against the greenback.
During the American trading session on Tuesday, the most important release of the week for EUR/USD traders will be published: April CPI. This report is particularly important to the market, as inflation is re-emerging amid the Federal Reserve's future actions. Recall that the March report reflected conflicting dynamics: the overall CPI accelerated to 3.3% year-on-year, while the core indicator (Core CPI) increased only slightly—from 2.5% to 2.6%.
Given this dynamic, the market will assess whether the March spike was temporary or if inflationary pressure in the US is becoming entrenched. Special attention will be paid to the core CPI as it reflects persistent inflationary processes. If the core inflation indicator approaches the 3% mark, the market will completely abandon expectations of monetary easing in the foreseeable future (currently, the probability of a rate cut by the end of this year stands at 10-15%). In such a case, the EUR/USD pair may come under pressure due to the widening yield differential between the US and the Eurozone.
On Wednesday, the second estimate of Eurozone GDP for the first quarter will be published, which typically serves as a clarifying measure. The second estimate is important primarily because it confirms or adjusts the initial picture of economic dynamics. The initial estimate showed rather weak growth of 0.1% quarter-on-quarter, signaling actual economic stagnation. In the context of the second estimate, the market's focus will shift not to the weak growth itself (which is already priced in) but to possible revisions to GDP components. For example, signals regarding domestic demand (a key factor in assessing the resilience of the Eurozone economy) and/or the contribution of the industrial sector (especially sensitive to external demand and global trade conditions). If the second estimate does not reflect significant revisions to key components (which is likely), traders will probably disregard the release.
During the American session on Wednesday, the Producer Price Index (PPI) will be published in the United States, which is known to be one of the key leading indicators of inflationary pressure in the "production - consumer prices" chain. In March, the overall PPI sharply accelerated to 4.0% year-on-year. The core index, however, remained at the previous month's level (3.8% YoY), thus not forming a clear trend towards accelerating inflation.
Essentially, the PPI is a "confirmation" inflation indicator that can either reinforce or soften market reactions following the CPI release. By itself, it is unlikely to set a trend for the EUR/USD pair, but it can significantly amplify the greenback's movement in the already established direction. For instance, if the core CPI and PPI indices resonate—showing either acceleration or stagnation (slowing) in core inflation.
The most important macroeconomic release on Thursday will be the retail sales report. As is known, this is one of the key indicators of consumer activity, which remains the primary driver of the American economy. Total retail sales rose in March by 1.7% (the highest growth rate since March 2025), following a gain of 0.7% in February. In April, the overall indicator's growth rate is expected to slow to 0.6%. However, traders will focus on the dynamics of the "control group" (retail sales excluding automobiles, gasoline, and building materials). In March, this group grew by 0.7% (against a forecast of 0.2%). If the core figure shows growth above 0.3%-0.4% in April, the dollar will receive significant support amid strengthening hawkish sentiment.
Another important report on Thursday will be the Unemployment Claims data. Weekly data on initial and continuing claims for unemployment benefits is one of the most timely indicators of the US labor market's state; therefore, sharp fluctuations or (especially) the formation of a stable trend can significantly impact EUR/USD. Recently, initial claims have fluctuated between 190,000 and 210,000, remaining at historically low levels. Continuing claims are around 1.76-1.8 million, also close to multi-month lows. According to forecasts, this week's figures will remain within the aforementioned ranges. The increase in initial claims is expected to be around 206,000, while continuing claims are projected at 1.78 million. Such results could provide background support to the dollar, especially if initial claims, contrary to expectations, fall below the psychologically significant 200,000 mark.
The economic calendar for Friday is not particularly busy. The only item of interest is the Empire Manufacturing Index, based on a survey of manufacturers in the New York Fed district. This indicator serves as an important leading signal for the nationwide ISM manufacturing index. In recent months, the Empire Manufacturing Index has shown significant volatility: it dropped to -0.2 points in March, then skyrocketed to 11 points in April, marking its highest level since November of last year. However, the improvement in April was ambiguous: the rise in new orders and shipments was accompanied by increasing price pressure and deteriorating business expectations. Most analysts believe that in May, the index will remain in positive territory but will slow down to 7 points. Such a result could provide background (short-term) support for the US currency.
Additionally, on Friday, data on industrial production volumes will be published in the US. This is an important macroeconomic indicator that can affect the EUR/USD pair in the event of significant deviations from forecasts. The US industrial sector is currently influenced by several mixed factors (weak external demand, high interest rates, geopolitical uncertainty, etc.). In March, industrial production declined by 0.5% (the worst result since the fall of 2024), while a slight 0.2% increase is expected in April. For dollar bulls, it is crucial that this indicator comes in positive after the March slump.
Despite the significance of macroeconomic reports, the tone of trading in the currency market will still be dictated by geopolitical developments, so traders will focus primarily on the negotiations between the US and Iran. According to Axios, a meeting just took place in Miami between US Secretary of State Marco Rubio and the Prime Minister of Qatar. It was noted that Doha is currently actively working "behind the scenes" and is an important intermediary due to its close contacts with Tehran. Insider sources indicate that the meeting was dedicated to advancing a memorandum of understanding to end the war.
Additionally, The Wall Street Journal reports that face-to-face negotiations between the US and Iran may resume in Islamabad as early as next week. If this information is confirmed, market interest in risk will rise again, allowing buyers of EUR/USD to "conquer" the 18-figure level. Conversely, escalation signals regarding a stalled diplomatic process will support the safe-haven dollar.
The "Warsh factor" could also influence the EUR/USD pair, but only if Congress fails to vote on his candidacy. On May 11, the Senate is set to vote on a procedural issue (necessary to end debates and move to a final vote), after which a final confirmation of Warsh as the chairman of the Fed is expected by the end of the week from the full Senate. The likelihood of this scenario being realized is nearly 100%, so traders are likely to ignore the mere fact of his confirmation. The real market impact will begin with Warsh's first statements as the head of the Fed—but, as they say, that's a whole other story.
