The euro-dollar pair finished Friday's trading at 1.1851, amid a sharp strengthening of the American currency. The dollar had been under significant pressure earlier in the week, allowing EUR/USD buyers to approach the borders of the 21 figure, marking a 4.5-year price high at 1.2082. However, fortune turned against the buyers as the price dropped by more than 200 pips in just two days, in response to the nomination of Kevin Warsh to the position of chair of the Federal Reserve.

The market viewed Warsh not as a "political emissary," but as a guardian of the Fed's institutional stability. His nomination signaled that even under pressure from the White House, monetary policy would not devolve into a tool for Trump's short-term political gain. Moreover, his views were shaped within the system (he had previously served on the Fed's Board of Governors), rather than from outside it. As a result, overall trust in the dollar increased, helping it strengthen across the market.

Now, traders will shift their focus to other fundamental factors that may not favor the US currency. The spotlight is on the shutdown, Iran, and key macroeconomic reports.

On Monday, the US government will partially suspend operations, despite an agreement reached between President Donald Trump and Democratic congressional leaders. According to the compromise, all government agencies will receive funding until the end of September (i.e., until the end of the fiscal year) – except for the Department of Homeland Security (DHS), whose funding will be extended for two weeks. The agreement was reached at the last minute before the deadline and was approved only in the Senate. The House of Representatives will return to work only on Monday, after the formal beginning of the partial shutdown.

Given the reached compromise, traders are unlikely to react strongly to the partial suspension of the US government; significant volatility is expected only if the lower house of Congress fails to vote (which is unlikely).

The situation with Iran is also in flux. Donald Trump stated that Tehran is negotiating with Washington regarding its nuclear program, but he expressed little optimism about the outcomes. Additionally, according to The Wall Street Journal, the White House is preparing options for quick military actions in Iran that would not entail the risk of a prolonged war. It is also claimed that Trump is considering using the threat of bombings as a pressure tactic to gain diplomatic concessions from Iran (i.e., the use of force is not the goal in itself). In turn, Iranian armed forces have been placed on high alert.

Whether this process will remain in the realm of negotiations or if "the guns will speak" in the end is an open question. Ultimately, this is the main intrigue for the upcoming week, at least in the context of geopolitics.

The key macroeconomic reports for the upcoming week will be published in the US. Focus will be on the ISM indexes and key releases in the American labor market (JOLTS, ADP, NFP). If a shutdown cannot be avoided, then the JOLTS and NFP publications will be delayed. But it seems that this will not happen—all reports will be released on time.

The manufacturing ISM index has shown a downward trend for the past three months, falling to 47.9. Since March of last year, the figure has remained below the 50 mark. Preliminary forecasts suggest that the index will rise slightly in January (to 48.5) but will remain in the contraction zone. However, if the figure again shows a downward trend contrary to expectations (for the fourth consecutive month), the dollar will come under pressure, as the ISM Manufacturing Index is an important indicator for assessing the state of the American economy.

This release is expected on Monday, while JOLTS data will be published on Tuesday (assuming the publication is not postponed due to the shutdown). The number of job openings in the private sector sharply fell in November (from 7.670 million to 7.150 million). This is the lowest value since September 2024. A slight increase to 7.210 million is expected in December. Such a result is unlikely to support the greenback, as the number of job openings will remain below the long-term average of recent years.

On Wednesday, the ADP report will be published, which could exert additional pressure on the dollar if it comes in at the forecast level or in the red zone. According to forecasts, private-sector employment increased by only 48,000 in January (after a 40,000 increase in December). Such a result would signal continued cooling in the American labor market. This represents another "warning bell" ahead of December's Nonfarm Payrolls.

On the same day (Wednesday), the ISM services activity index will be released in the US. The index has shown positive dynamics over the past three months, reaching a level of 54.4 (the highest value since October 2024). A slight decline is expected in January to 53.6. It is crucial for dollar bulls that the index remains above the 50 mark. In this case, the release may serve as a "lifeline" for the greenback, should the aforementioned reports come in the red zone (at least, this was the situation a month ago).

Lastly, on Friday, key US labor market data for January will be published (if the shutdown does not make its corrections). Preliminary forecasts indicate that unemployment in the United States will remain at December's level of 4.4% in January. Employment in the non-farm sector is expected to increase by only 67,000 (after a 50,000 increase the previous month). Wage growth (average hourly earnings) is expected to drop to 3.6% after rising to 3.8%.

The projected data will indicate a slowdown in the US labor market and a decrease in inflationary pressure. If the Nonfarm Payrolls come in at the forecast level (not to mention the red zone), the dollar will come under pressure, even despite the "Warsh factor." For even though Warsh has a reputation as a "guardian" of institutional stability at the Fed, he is a potential architect of a cycle of aggressive rate cuts. Weak Nonfarm Payrolls will provide additional support for easing monetary policy. Furthermore, the current Fed Chair, Jerome Powell, stated that subsequent rate decisions will largely depend on the dynamics of the US labor market.

It is also worth noting that on Thursday, the first ECB meeting of the year will take place. However, despite its significance, this event is unlikely to have a meaningful impact on the EUR/USD pair. The outcomes of the ECB's February meeting are predetermined (the central bank will most likely keep all monetary policy parameters unchanged), so the market has already priced them in.

Nevertheless, traders of EUR/USD will face a busy week ahead. The dollar will set the tone for trading, reacting to key fundamental factors (shutdown, geopolitics, ISM indexes, and US labor market reports).

From a technical standpoint, the EUR/USD pair, despite the impulsive price decrease, remains on the D1 timeframe between the middle and upper Bollinger Bands, as well as above all lines of the Ichimoku indicator, which still shows a bullish "Parade of Lines" signal. It is advisable to consider short positions only after the pair breaks below the support level of 1.1820 (at this price point, the Tenkan-sen and Kijun-sen lines intersect). Otherwise, the pair will likely return to the 19 figure area.