The upcoming week promises to be no less volatile than the previous one. The focus will be on key inflation reports from the US—July's CPI and PPI. Each of these reports could trigger a serious spike in volatility—especially after the weak July Non-Farm Payrolls caused the market to reevaluate its expectations for future Federal Reserve policy. Fresh inflation data could either strengthen expectations of a "dovish" stance (increasing pressure on the greenback) or, conversely, allow the dollar to regain some of its lost ground.

In other words, the upcoming releases have the potential to set the tone for trading in the EUR/USD pair not only for the coming days but also for the following weeks.

The July report on the rise in the US Consumer Price Index (Wednesday, August 12) is particularly important for the greenback, as it will follow an unexpectedly weak labor market report. According to preliminary forecasts, the overall CPI is expected to slow to 3.4% year-on-year, down from June's 3.5%. On a monthly basis, the index is expected to show minimal growth (+0.1%), after a decline into negative territory (-0.4%) in the previous month. The annual core Consumer Price Index is also expected to slow down to 2.5%, following a sharp drop (from 2.9% to 2.6%) in June.

The significance of these forecasts is amplified by the geopolitical events that unfolded in July. Over the past month, inflationary risks have significantly increased amid another escalation of the Middle Eastern conflict and a sharp rise in oil prices. Even the Fed, in the aftermath of the July meeting, pointed out persistently elevated inflation and labeled the situation in the Middle East "one of the sources of economic uncertainty." Therefore, an expected decline in the CPI in the face of such an unfavorable external price factor will appear particularly pronounced. Such a result would be a compelling indication that the new wave of rising energy prices has not led to increased domestic inflationary pressure in the US.

Additionally, the July CPI should be viewed in light of the already published July NFP. If the inflation report comes out at least in line with forecasts (not to mention hitting the "red zone"), the potential slowdown in CPI will coincide with a cooling labor market.

To briefly recap, July's Non-Farm Payrolls were significantly weaker than expected: the US economy lost 23,000 jobs, and wage growth slowed to 3.2% year-on-year (after June's rise to 3.5%). Moreover, the data for May and June were revised downward by a total of 103,000 jobs.

The combination of these two trends—slowing inflation and weakening wage pressure—has the potential to significantly change the Fed's position, at least in terms of verbal rhetoric. As is known, weaker wage dynamics reduce the risk of secondary inflationary pressure via consumer demand, while a decline in CPI indicates that price shocks (for now) are not becoming a sustainable inflation trend.

In other words, the July CPI will serve as a key "test" for the Fed's hawkish scenario. If consumer inflation indeed slows down in the wake of weak NFP and slowing wage growth, the market will once again discuss the prospects for a rate cut in the coming quarters.

Equally important for assessing the inflation picture in the US will be the July Producer Price Index report, which will be published on Thursday, August 13. This report will serve as a sort of check on how sustainable the anticipated slowdown in consumer inflation might be.

Producer prices are traditionally seen as a potential source of future pressure on consumer prices, so a moderate rise in PPI in July (again, amid significant Middle Eastern events) will strengthen confidence that inflationary momentum is indeed losing momentum.

The consensus market forecast suggests a moderate monthly PPI recovery—approximately 0.2%—following a 0.3% decline in June. Year-on-year, this will translate to a figure in the range of 5.5-5.6%, meaning no significant acceleration from June's 5.5% y/y.

A decrease in consumer inflation without a sharp acceleration in producer prices will allow for discussions about a gradual easing of price pressure in the US. Such a result (or combination of results) will significantly pressure the US dollar, especially in light of weak labor market data.

From a technical perspective, the EUR/USD pair on the four-hour chart is situated between the middle and upper lines of the Bollinger Bands indicator, and above all lines of the Ichimoku indicator, which has formed a bullish "Parade of Lines" signal. This suggests that the pair retains growth potential toward the upper Bollinger Band on the H4 chart, specifically to the level of 1.1560, and then to the level of 1.1580 (the upper Bollinger Band on the daily chart). If EUR/USD buyers overcome the last price barrier, it will open the way to the 16 figure area, with the next resistance level at 1.1630 (the Kijun-sen line on the weekly chart).