EUR/USD forecast: Currency pair of the week | Monday 12 January 2026

The dollar fell against the euro and indeed almost all other major currencies today (except the yen) on the back of a surprise announcement that federal prosecutors have opened a criminal investigation into Fed Chair Jerome Powell. That development immediately raised concerns around the Fed’s independence, prompting investors to sell US assets broadly and rotate into traditional safe havens. But we saw US indices come back up, even as gold and silver continued to surge higher. The EUR/USD forecast remains neutral despite the rebound given the recent mildly bearish price action, and pockets of strength in US data. But If fears around Fed independence fade quickly, the EUR/USD may well resume lower, even if the downside looks to be quite limited. Atten will shift back towards incoming data with CPI and retail sales firmly in focus this week, following a mixed jobs report released on Friday of last week.

 

Annexation of Greenland major risk for EUR/USD forecast

 

The main downside risk to the euro and frankly nearly all other major European currencies is the growing risk from the US threat to forcibly annex Greenland. Data-wise, the euro has very little to work with this week. As well as the lack of any meaningful data, it is unlikely that any of the ECB speakers will say anything out of the ordinary. As a result, markets are unlikely to materially adjust ECB rate pricing.

 

Therefore, if concerns over Fed independency quickly fades, there is scope for the EUR/USD to push towards 1.1600 in the near term, possibly 1.1500, as the dollar makes a potential recovery.

 

 

Focus turns to US CPI release

 

Meanwhile, the US economic calendar is also not super busy this week, but we do have a couple of important macro pointers scheduled. Following Friday’s mixed US non-farm payrolls report, consumer inflation data is expected to land on Tuesday with a headline reading of 2.7% year-on-year, unchanged from the previous month. On a month over month bases, both headline and core CPI measures are expected to print +0.3% respectively.

 

One other potentially market moving event that investors will need to be watching is the Supreme Court ruling on Trump’s tariffs. A potentially unfavourable ruling could emerge at some point this week and may lend further support to the dollar.

 

 

For now, though, those factors feel secondary. Investors are likely to demand greater clarity on the Fed situation before rebuilding meaningful dollar long positions. A much weaker inflation print combined with lingering doubts over Fed independence could instead trigger a dollar slide, potentially lifting the EUR/USD forecast, particularly if there is also a technical break out from the bearish channel.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R