At the end of last week, the dollar weakened across the market amid a sharp yen rally, which responded to rumors of a currency intervention. The rise of the Japanese currency prompted a mass closure of carry positions. This situation triggered a mechanical sell-off of the dollar against major currencies (including the euro)—not due to a deterioration in the fundamentals of the American currency, but because of position reallocations and reduced risk.

Generally, such fundamental factors do not last long: already next week, EUR/USD traders will focus on key macroeconomic reports and the Federal Reserve meeting, the results of which we will learn on Wednesday.

Monday

In Germany, the IFO indices will be published. According to preliminary forecasts, they are expected to show positive dynamics. In particular, the business climate indicator is projected to rise in January to 88.3 (the highest level since October), after a decline to 87.6 in December.

Let me remind you that last week, Germany released rather strong ZEW indices. All components of the report came in the green zone, significantly exceeding forecast estimates. For example, the business climate sentiment index rose to 59.6 points in January, with a forecast of growth to 50.0. This is the strongest result since July 2021. The ZEW and IFO indices are closely related, although they reflect different "layers" of expectations: the ZEW captures the sentiments of financial analysts and investors and usually leads the IFO, which is based on surveys of real businesses.

During the American session on Monday, we will receive data on U.S. durable goods orders. This release may support the dollar, even if it comes in at the forecast level (not to mention the "green zone"). The total volume of orders is expected to increase by 3.1% (the highest level since May of last year), following a 2.2% decline in the previous month. Excluding transportation, the volume of orders is expected to increase by 0.3%, following a 0.1% increase.

Tuesday

On Tuesday, the Conference Board's consumer confidence index will be released in the United States. Over the past two autumn months (September and October), the indicator remained at the same level (95.6; 95.5), but in November it sharply and unexpectedly decreased to 88.7. In December, a slight increase was recorded—to 89.1. Most analysts believe that in January, the index will once again demonstrate positive dynamics, recovering to 90.1. Such a result would support the U.S. dollar, especially given the relatively strong third-quarter GDP growth data for the U.S., published last week (the estimate was revised from 4.3% to 4.4%). However, if the index falls below the 88.7 target (indicating a resumption of the downward trend), the dollar will face significant pressure. Such a result would indicate further deterioration in consumer sentiment, potential decreases in spending, and a heightened probability of economic slowdown.

Also on Tuesday, the S&P/Case-Shiller housing price index for the 20 largest U.S. cities will be published. This is one of the key indicators of the real estate market's condition, widely used for trend analysis. Over the year—from January 2025—the index has demonstrated a downward trend, declining from 4.8% to 1.3%. According to preliminary forecasts, the indicator will again decrease in November—this time to 1.1%. For dollar bulls, it is crucial that this indicator does not fall into negative territory. Typically, this report has little influence on EUR/USD, but if the figure comes in below zero, the greenback will come under pressure.

Wednesday

Perhaps the most important day of the week. On this day, we will learn the results of the January Federal Reserve meeting. According to preliminary forecasts, the central bank will keep all monetary policy parameters unchanged. The probability of this scenario is 96% (according to the CME FedWatch tool data), so the formal outcomes will have no effect on EUR/USD. Traders are interested in further prospects. For example, the likelihood of monetary policy easing at the March meeting has decreased significantly in recent days and is now only 15%. The chances of a rate cut in April are just under 30%.

Most analysts at major banks maintain a "moderately hawkish" stance (particularly at J.P. Morgan and Goldman Sachs). The most likely timing for a rate cut this year is July or September. Some experts even suggest a wait-and-see approach for the rest of the year. They argue their position by pointing to the rising core PCE index, stagnant CPI, and accelerating PPI, alongside some signs of recovery in the labor market (notably low Unemployment Claims).

If, amid such hawkish expectations, Fed members allow for a rate cut at one of the upcoming meetings (March-April), the dollar will come under severe pressure. In such a case, hawkish expectations would provide the greenback with a "bearish" assistance in every sense of the word.

Thursday

The most important release on Thursday for the EUR/USD pair will be the aforementioned Unemployment Claims report. Over the past four weeks, the growth of initial jobless claims has been around the 200,000 mark, reflecting "healthy trends" in the American labor market. If, by the end of this week, the indicator also comes in at this level (forecast +202,000), the dollar will receive support, although everything here will, of course, depend on the results of the January Fed meeting. In other words, a "green" coloring of the Unemployment Claims report could complement the fundamental picture for the greenback if the Fed does not disappoint dollar bulls with a "dovish" stance.

All other releases on Thursday will be of secondary to tertiary importance for EUR/USD traders.

Friday

On Friday, data on the labor market and the economy as a whole will be published in Germany. The unemployment rate in December is expected to remain at 6.3%. This level has been maintained for 9 (!) months, and December should mark the 10th month in this series. The number of unemployed is expected to increase by 5,000, after a 3,000 increase in the previous month. If this figure comes in at the forecast level or in the "red zone," it could signal a negative trend (a third consecutive month of rising prices).

Also on Friday, we will learn preliminary data on the German economy's growth. According to forecasts, Germany's GDP in the fourth quarter is expected to increase by 0.2%, following zero growth in the third quarter.

Overall, the Eurozone's GDP is expected to grow by 0.2% quarter-on-quarter in the fourth quarter (after 0.3% growth in the third quarter) and by 1.5% year-on-year (+1.4% in the previous quarter).

During the American trading session, one of the important inflation indicators—the producer price index—will be released. On Friday, we will learn the indicator's value for December (the report was not published on time due to the shutdown). According to forecasts, the overall PPI is expected to accelerate to 3.2% year-on-year, while the core PPI is expected to accelerate to 3.1%. A more significant increase in the indicator will provide additional support for the greenback.

Conclusions

Ahead is an important week for the dollar and, consequently, for the EUR/USD pair. The central event of the week will be the January Federal Reserve meeting, the results of which may either strengthen the dollar's position or once again place it among the underperformers. Given the somewhat inflated hawkish expectations, the second scenario seems more likely.

All other fundamental factors will play a secondary (supporting) role. A southern pullback for EUR/USD is also expected after the unjustifiably strong rise at the end of last week. The pair is likely to return to the range of 1.1730-1.1790 (the middle and upper lines of the Bollinger Bands on H4), while the direction of further price movement will depend on the results of the January Federal Reserve meeting.