Friday's Nonfarm Payrolls sounded a loud chord, finalizing the past week. However, despite the report's resonance and importance, it failed to impose a clear directional bias for EUR/USD. The pair closed Friday at 1.1614, so, formally, the week ended in buyers' favor, since the W1 opening price stood at 1.1581.

From a technical standpoint, the pair ended the week at a crossroads — on the middle line of the Bollinger Bands on the D1 timeframe and between the Tenkan-sen and Kijun-sen lines. If the balance shifts to the north, price will sit between the middle and upper Bollinger Bands and Ichimoku will form a bullish "Parade of Lines" signal. In that case, the 1.17 area could come into view. Otherwise, the pair may remain within the 1.15 range with a target toward 1.1510 (the lower Bollinger Band coinciding with the upper Kumo boundary on D1).

The key drivers of EUR/USD price action next week are US CPI/PPI prints and the September European Central Bank meeting — in other words, the degree of decoupling between Federal Reserve and ECB rates and the corresponding monetary expectations.

CPI/PPI

The main reason the dollar reacted weakly to strong Nonfarm Payrolls is that the market received two dovish signals at once.

First, Fed Governor Christopher Waller said he is inclined to support holding the current rate at the September meeting if the inflation picture continues to improve.

Second, Donald Trump publicly demanded that the Fed lower borrowing costs. This is not his first such call, but it is the first made while Kevin Warsh is chair. Warsh's predecessor, Jerome Powell, once withstood White House pressure despite having initiated legal action (which was later dropped). Whether the current Fed chair will withstand similar pressure is an open question — especially since Warsh himself took a fairly hawkish stance on inflation in his recent Jackson Hole remarks.

In this context, CPI and PPI can serve as the catalyst that the labor market data lacked. Consensus expects US consumer prices to accelerate in August to roughly +0.4% month-on-month (from +0.1%), with the annual rate holding near 3.4%. Core CPI is expected to remain at July's monthly rate of +0.2% and to tick down slightly year-on-year (from 2.5% to 2.4%).

For PPI, the market is preparing for acceleration: the producer price index is forecast to rise about 0.4% m/m and to about 4.9% y/y (some estimates even point to ~5.1%). This scenario looks logical given the oil factor. In July, it barely showed up in inflation data: energy in the CPI even fell (-1.5%), and July PPI was flat. However, much of PPI data is collected early in the month, so the sharp summer spike in oil prices did not make it into July's report. August data should capture the summer energy impulse.

If CPI/PPI prints come in the "green zone," hawks' positions will be substantially reinforced — especially against the backdrop of Warsh's tough Jackson Hole rhetoric. Even Christopher Waller, while currently prepared to wait, warned he would support rate hikes if inflation accelerates again.

If inflation prints land in the "red zone," the dollar will face significant pressure (also due to Waller's and Trump's rhetoric) — in that case EUR/USD buyers would likely return to the 1.1640–1.1680 range with prospects of testing the 1.17 area.

Note that due to Labor Day in the US, federal offices and the Bureau of Labor Statistics will be closed on Monday (September 7), so the workweek begins Tuesday and inflation releases shift by one day — PPI will be released on Thursday (September 10) and CPI on Friday (September 11).

ECB

The second key story of the week is the ECB meeting on Thursday, September 10. A 25 bp rate hike is already almost fully priced in — that is the baseline scenario. Market focus will therefore be on the accompanying statement and Christine Lagarde's rhetoric.

Recent inflation releases leave more questions than answers. In Germany, consumer inflation accelerated in August to 2.9% y/y from 2.8% in July, while core inflation held at 2.4%. In the eurozone, preliminary HICP estimates show acceleration to 3.3% y/y (from 2.9%), with the energy component jumping to 14.3%. At the same time, core inflation slowed to 2.4%.

Thus, the energy shock so far is reflected in headline inflation but has not translated into a sustained rise in core prices — the "secondary effect" is not yet visible. The ECB could therefore deliver a "dovish hike." If Lagarde stresses the temporary nature of the energy spike and adopts cautious rhetoric about further tightening, the euro will come under considerable pressure despite a rate increase. But if she signals that September's hike is not the last, the single currency (and EUR/USD) will gain additional fundamental support.

Conclusion

Next week can be pivotal. CPI/PPI data will shape expectations about Fed policy, while the ECB meeting will test the persistence of inflationary pressures in the eurozone. The combination of these two factors could finally lift EUR/USD out of its prolonged sideways range.