The euro-dollar pair began the trading week calmly, almost at the level of Friday's close (1.1642–1.1645). While sellers controlled the situation on Friday, buyers have now taken charge. That said, the pair is still effectively moving sideways, fluctuating within a relatively narrow price range in the 1.16 area.

To confirm the upward trend, EUR/USD bulls need to overcome the resistance level at 1.1700 (the upper line of the Bollinger Bands indicator on the four-hour chart). To resume the downward movement, bears need at least to push the price into the 1.15 area, that is, to consolidate below the 1.1590 support level (this is the lower line of the Bollinger Bands on the H4 timeframe, which coincides with the upper boundary of the Kumo cloud). In other words, the pair should fall below all Bollinger Bands lines as well as the Tenkan-sen and Kijun-sen lines. In that case, an "opening" would emerge — the pair would likely drop to the lower boundary of the 1.15 area, that is, to the 1.1510 support level, which corresponds to the lower boundary of the Kumo cloud on the same timeframe.

For now, however, the pair continues to trade sideways, reflecting the indecision of both EUR/USD buyers and sellers. Traders have already priced in the weak July NonFarm Payrolls and soft ISM indices (both in manufacturing and services), but for a sustainable upward move, additional news drivers are needed — as they are for a downward reversal.

Given that Monday's economic calendar is empty and U.S. CPI/PPI growth reports lie ahead, trader caution is quite understandable. The market is in that calm often seen before a storm.

The key inflation releases are ahead. It is worth recalling that the July NonFarm Payrolls, which showed an increase of 73,000 jobs in July and 33,000 in May–June combined, sharply strengthened dovish sentiment regarding the Fed's next moves. According to the CME FedWatch tool, the probability of a 25-basis-point rate cut now stands at 88%, meaning the market is almost certain of a September cut. Moreover, the likelihood of an additional 25-basis-point cut at the October meeting has risen to nearly 60%. The market also has little doubt that if the Fed does not cut again in October, it will do so in December (the probability of maintaining the status quo after a September cut is just 12%).

In other words, after the latest NonFarm and ISM data, market participants expect two rounds of rate cuts before the end of 2025 — one in September and another at one of the two remaining meetings this year.

The inflation reports could undermine this outlook by weakening traders' dovish expectations. Judging by preliminary forecasts, such a scenario is quite possible.

Tomorrow, August 12, the U.S. will release one of the key inflation indicators — the Consumer Price Index. Headline CPI has been rising for two months, accelerating in June to 2.7% y/y. July may be the third consecutive month in this trend — most analysts expect the figure to rise to 2.8%. Core CPI increased in June to 2.9% y/y after three months at 2.8%, and July is also expected to see growth, to 3.0%.

Another important inflation indicator will be released on Thursday, August 14 — the Producer Price Index (PPI). The previous report somewhat offset the accelerating CPI, as it showed a downward trend. Both the headline and core PPI declined, moving into negative territory. However, this month, experts expect growth in these indicators. For example, headline PPI is projected to accelerate to 2.5% y/y (from 2.3% previously), while the core PPI is expected to rise to 2.7% y/y (after June's decline to 2.6%).

Given that most analysts expect CPI/PPI to accelerate, any other outcome (stagnation or slowdown) would significantly hurt the U.S. currency. In that case, the probability of a Fed rate cut in September would rise to 90–95%, increasing the chances of an additional cut in October or December.

But if the inflation indicators do accelerate — especially if they exceed expectations — dovish expectations will inevitably weaken. It is worth recalling that Fed Chair Jerome Powell has repeatedly stated that when deciding on rates, the central bank will assess not only labor market data but also inflation. Therefore, if CPI/PPI fall into the "green zone," the prospects for a September rate cut will be seriously questioned. In that scenario, EUR/USD sellers will likely try to use the situation to their advantage, attempting to return to the 1.15 area.

The wait is nearly over: the first (and most important) "test" for the dollar comes tomorrow, August 12.