New York, January 16, 2026 — The euro and U.S. dollar held steady around 1.1658 on Tuesday, after a volatile couple of days, as investors braced for crucial economic data that will likely shape the Federal Reserve’s next moves. The market is currently anticipating two interest rate cuts this year, potentially starting in June, but a surprisingly strong inflation report could quickly change that outlook.
Inflation Data Set to Drive Euro-Dollar Direction
Key economic indicators will determine whether the Fed eases or pauses monetary policy.
- The EUR/USD pair stabilized Tuesday after recent fluctuations.
- Upcoming U.S. economic data is the primary market focus.
- Technical analysis suggests a potential dip to 1.1555 if inflation remains elevated.
- Concerns about the Federal Reserve’s independence surfaced this week.
Last week’s weaker-than-expected December jobs report (NFP) bolstered expectations for a more dovish Federal Reserve, meaning a leaning towards lower interest rates. However, the upcoming inflation data holds the real key.
What happens if inflation stays high? A hotter-than-expected inflation print could significantly dampen hopes for rate cuts, potentially strengthening the dollar and pushing the EUR/USD pair lower.
Adding another layer of complexity, investors are also keeping a close eye on the U.S. Supreme Court, which is expected to rule as early as Wednesday on the legality of former President Donald Trump’s tariff policy.
Earlier this week, the dollar faced some headwinds amid reports that Federal Reserve Chair Jerome Powell might face scrutiny over his testimony regarding a building renovation project. While concerns about the Fed’s independence remain limited, the situation adds a touch of uncertainty to the market.
Technical Analysis: EUR/USD
H4 Chart:
Looking at the four-hour chart, the EUR/USD is currently undergoing a corrective retracement within a larger downward trend. The immediate target for this correction is 1.1700. Once that level is reached, analysts anticipate a resumption of the downtrend, with a potential bearish target of 1.1555. The MACD indicator supports this view, with its signal line below zero and trending downward, indicating continued bearish momentum.
H1 Chart:
On the one-hour chart, the pair has fallen to 1.1655 and is now showing an upward corrective move towards 1.1700. Analysts expect renewed selling pressure to emerge upon reaching this level. The Stochastic oscillator aligns with this assessment, as its signal line is below 20 but turning upward towards 80, suggesting a short-term bounce before a potential further decline.
Looking Ahead
The EUR/USD pair is currently in a holding pattern, awaiting the release of key U.S. inflation data. While the technical structure leans bearish, a corrective bounce towards 1.1700 seems likely before sellers potentially regain control. A stronger-than-expected inflation reading could reinforce the dollar’s strength and accelerate a move towards 1.1555.
