The PPI report in the US changed the dynamics for EUR/USD in just one session. Headline PPI increased by 0.5% month-over-month, while core PPI rose by 0.7% month-over-month, contrasting with the consensus expectation of 0.2% for each. This led to a recalibration of the anticipated second Fed cut in 2026, shifting it toward October, resulting in an increase in US yields and disrupting the prevailing narrative of a consistently weakening dollar. In that release, EUR/USD had already moved higher, surpassing the 1.1866 resistance that had hindered buyers for weeks and indicating a typical trend-continuation pattern toward 1.20–1.23. Once PPI was released, that breakout faced significant selling pressure. The duo quickly reversed their gains, transforming what appeared to be the beginning of a prolonged upward trend into a brief surge followed by a setback. The price movement indicates that there was a dense positioning on the EUR side and an overly positive outlook regarding near-term US disinflation. President Trump’s choice to nominate Kevin Warsh for the next Fed chair introduces additional complexity to the EUR/USD dynamics. Warsh is known for his hawkish reputation from his previous time at the Fed, but he is now anticipated to back lower rates compared to the highly restrictive approach observed earlier in the cycle. The nomination resulted in two direct impacts pertinent to EUR/USD. Initially, it contributed to the collapse of the speculative surge in precious metals, affirming that the Fed is improbable to implement an extremely accommodative intervention to save the gold and silver bubble that had driven spot gold to approximately $5,600 and silver to around $120 prior to the downturn. Second, it halted the dollar’s decline from a four-year low: the US Dollar Index formed a significant bullish pin bar off recent multi-year lows, despite the overall trend still being downward with DXY remaining below its 13-week and 26-week levels.
This creates an asymmetric configuration for EUR/USD. The Fed under Warsh’s leadership is not expected to support a policy shift that is excessively dovish to the point of undermining the USD, nor is it set to implement a Volcker-like tightening approach. This suggests a volatile yet still unfavorable environment for the dollar in the medium term, characterized by significant counter-trend rallies similar to the recent movement following the PPI release. Simultaneously, the geopolitical landscape is incorporating a war premium into commodities and risk assets, which indirectly influences EUR/USD. Current forecasts indicate a probable US military action against Iran in March, with the US continuing to enhance its military presence in the region. The outcome is evident in WTI crude, which has reached a new 4-month peak, trading above $66 and challenging resistance at that level. The increase in crude prices alongside war risk impacts EUR/USD in two significant ways. The increase in global risk aversion typically bolsters the USD as the main reserve asset, while also constraining the external position of energy-dependent areas such as the euro zone. This combination generally limits EUR/USD gains in the near term, despite the overarching narrative supporting a weaker dollar over a longer timeframe. The weekly chart of the US Dollar Index is currently presenting a blend of signals for EUR/USD traders. On one hand, DXY continues to exhibit a long-term downtrend, trading beneath its levels from 13 and 26 weeks prior and recently reaching a new 4-year low before the latest rebound. Conversely, the candle from last week exhibited a robust bullish pin bar that rejected those lows, representing a reversal pattern that has the potential to drive a multi-week squeeze.
The outlook for EUR/USD remains clear: the macroeconomic environment continues to support a weaker USD through 2026, as US inflation has moderated sufficiently to warrant potential cuts later this year. However, the timing and speed of these adjustments have become less predictable following the unexpected 0.5%/0.7% PPI figures. This uncertainty fosters fluctuations in both directions instead of a clear, singular trend. On the daily chart, EUR/USD provided precisely what trend-followers anticipated initially: a clear break above 1.1866, a level that had constrained price movement for months. The breakout demonstrated sufficient strength that certain projections clearly transitioned to a positive outlook for February, anticipating EUR/USD to increase and sustain momentum as long as the pair remained above that threshold. Following the PPI release and the Warsh nomination, the pair experienced a significant decline, falling sharply below the breakout zone. The momentum has shifted from robust gains to significant intraday selling, indicating that this movement exhibits all the traits of a failed breakout rather than the beginning of a lasting upward trend. Below the current level, the 1.16 area is now a plausible downside target if sellers maintain their dominance. On the upside, any renewed upward pressure will initially encounter 1.1866 as previously established resistance, followed by 1.20, and ultimately the previous extension target around 1.23.
The decline in precious metals is not merely a distraction; it significantly influences your interpretation of EUR/USD. Silver surged to approximately $122 before plummeting below $90 in a single session, raising concerns about a potential drop toward $80. Gold reached approximately $5,600 per ounce before experiencing a sharp decline, with recorded prices near $4,770–$4,900 and intraday lows around $4,679.50, reflecting an 8–15% decrease based on the reference point used. For XAU/USD, various intricate patterns continue to suggest that the overarching upward trend is preserved as long as gold stays above approximately $4,000–$4,400, with significant support levels around $4,650 (50-day moving average), the high $4,800s–low $4,900s, and further demand nearer to $4,600 and $4,500. The interplay of a significant correction alongside a sustained long-term uptrend suggests that the dollar’s movement represents not a complete shift in the market but rather a forceful adjustment in heavily positioned trades. For EUR/USD, the signal remains consistent: the market has recently penalized late-longs in high-beta “anti-dollar” trades (Silver, speculative gold, crypto), while structurally supported assets (reserve-driven XAU/USD, major FX pairs) are in significantly better condition. This suggests caution in projecting the recent strength of the USD into a prolonged bullish trend. The addition of crypto introduces an extra dimension to the risk assessment. BTC/USD has fallen below a significant support level just above $81,000, now trading around $77,000 and reaching a new 9-month low after previously peaking near $126,100. The decline amounts to approximately 38% from the highest point. Numerous experts currently refer to this phase as “capitulation,” with some explicitly categorizing it as a bear market, even amidst continuing discussions.
From a EUR/USD perspective, the crucial observation is that speculative risk assets are experiencing a simultaneous repricing downward: the silver bubble has burst, gold has corrected, BTC has lost long-term support, while US equities (S&P 500 above 7,000) are moving forward without significant upward momentum. In that context, the dollar often gains from defensive movements, despite its long-term fundamentals staying weak. The current setup is precisely what is limiting the upward movement of EUR/USD. Currently, the narrative surrounding the USD is primarily influenced by the PPI shock and the Warsh nomination. The monthly PPI stands at 0.5% for the headline and 0.7% for the core, providing the Fed with a solid rationale to postpone cuts while maintaining a consistent stance. The markets have reacted by delaying the second cut in 2026 to the fourth quarter, which bolsters yields and the dollar in the short term. The situation regarding the EUR continues to reflect sluggish growth and a trend of lower inflation compared to the US, with the ECB positioned nearer to a neutral or slightly supportive approach. This indicates that the euro is not gaining from a significant hawkish repricing to counter the unexpected movements in the US; the changes have mainly occurred through the USD component. Consequently, EUR/USD is caught in a tug-of-war between a dollar that is fundamentally overvalued and a temporary change in US interest rate expectations that supports the strength of the USD.
The directional volatility among major assets has moderated from the peaks observed in Silver and gold, yet it continues to hold significance. In the last week, merely 11% of significant FX pairs experienced fluctuations exceeding 1%, while EUR/USD notably exhibited a substantial intraday range during the breakout and subsequent failure sequence. Simultaneously, the Swiss franc and New Zealand dollar emerged as the strongest among the major currencies, whereas the US dollar positioned itself among the weakest over a multi-week period, even with the recent uptick. For EUR/USD, this combination—US dollar remaining weak over a multi-week perspective but demonstrating a robust weekly pin bar from lows—supports tactical trading rather than indiscriminate trend-following. Maintaining a long position on EUR/USD as it surpassed 1.1866 without confirmation has resulted in losses; future movements will necessitate more stringent trigger points and a precise understanding of the market’s response to forthcoming US labor and inflation figures.