The new week promises to be informative for EUR/USD traders despite the fact that the economic calendar is not full of important releases. Most notably, the next Federal Reserve meeting, scheduled for May 6–7, will determine the central bank's future course of action.

Despite a relatively light economic calendar, the FOMC meeting is the week's central event. Given Donald Trump's recent criticisms of Fed Chair Jerome Powell, it will be particularly interesting to see whether the central bank's rhetoric shifts—especially regarding the timing and pace of monetary policy easing. Even aside from the president's remarks, the Fed faces a challenging environment: rising inflation expectations and a slowdown in U.S. economic growth.

According to the latest data, the U.S. CPI slowed in March: headline inflation dropped to 2.4%, while core inflation eased to 2.8%. However, that report has already lost relevance, reflecting pre-tariff conditions. More current indicators show a different picture. For example, the University of Michigan's survey reports one-year inflation expectations at 6.5%—the highest since 1981. Meanwhile, U.S. GDP shrank by 0.3% in Q1, consumer confidence fell to 86.0 in April, and the manufacturing PMI dropped to 48.7.

April's Nonfarm Payrolls can be interpreted both positively and negatively. The number of jobs added was 177,000—above the 133,000 forecast. However, the figure remained below 200,000 for the fourth straight month, and leading indicators point to worrisome trends. For instance, initial jobless claims have increased for two consecutive weeks, hitting 241,000 last week— the highest since late February.

It's worth recalling that Powell commented sharply on the introduction of new tariffs in April, warning that such measures would slow the U.S. economy, raise unemployment, and stoke inflation. That prediction has already partially materialized. Powell also reassured markets that the Fed would not rush to cut rates.

I believe the Fed will likely maintain its current monetary policy stance after the May meeting and continue to adopt a cautious tone. The central bank will likely focus more on inflation risks than recession fears. Higher tariffs are expected to accelerate inflation, especially since many U.S.-made products rely on imported components. Consequently, prices for both imported and domestic goods are rising. Given the absence of any trade deals from Washington—including with China, where talks haven't even begun—it's unlikely that the Fed will lower rates in May or June.

This expectation aligns with market sentiment. According to the CME FedWatch tool, the Fed's probability of leaving rates unchanged in May is 97%, while the probability of a rate cut in June is 35%.

If the Fed sticks to this base scenario, the dollar will likely have a muted reaction. First, markets have already priced it in. Second, attention will be focused on the wording of the accompanying statement and Powell's commentary. Any pessimistic forecasts from the Fed could add pressure on the dollar.

The May Fed meeting is the most significant scheduled event of the week. The keyword here is "scheduled" because the forex market is now frozen mainly in anticipation of something unscheduled but widely expected: the beginning of trade negotiations between the U.S. and China.

To recap, Trump hinted at a willingness to return to the negotiation table last week. Meanwhile, China's Ministry of Commerce stated that Beijing is "assessing the U.S. proposal to begin dialogue." If both sides sit down to negotiate next week, the dollar will receive strong support, regardless of the outcome. The initial market reaction will be emotional and clearly in the greenback's favor. Although the trend may reverse later (especially if talks stall or hit a deadlock), the dollar would likely strengthen in the short term due to increased demand.

However, if no progress is made on initiating U.S.-China negotiations next week, the dollar could come under background pressure, with the Fed becoming the week's central market mover.

From a technical standpoint, the EUR/USD pair attempted to test the 1.1260 support level last week (the lower line of the Bollinger Bands indicator on the 4H chart) but eventually ended the week at 1.1300—marking the fourth consecutive Friday close within the 1.13 handle. Short positions will only become relevant if EUR/USD sellers consolidate below 1.1260, opening a path toward the 1.12 level. If bears fail to make a "southern breakout," the pair will likely trade within the 1.1300–1.1400 range.