Global markets entered the week with renewed optimism following the announcement of a US-EU trade agreement, lifting equity futures on both sides of the Atlantic. The resolution, arriving just days ahead of a looming tariff deadline, offers temporary relief to markets and shifts investor focus toward a highly anticipated lineup of economic data and central bank meetings.

Market Sentiment: From Recession Fears to Bubble Anxiety

While recession concerns have dominated headlines for much of the year, investor sentiment appears to be shifting. Instead of bracing for a downturn, markets are now increasingly alert to the risks of asset bubbles, particularly in equities. The trade deal has helped remove one layer of uncertainty, giving markets the breathing room to digest upcoming data and monetary policy signals.

FX Markets: Muted Response Ahead of Heavy Data Week

Despite the positive sentiment in equities, foreign exchange markets have shown limited reaction. This calm is not surprising given that a trade agreement of this nature had been heavily speculated on in recent days. Investors are instead bracing for a wave of US economic data and central bank decisions that are likely to shape the direction of the US dollar in the near term.

Key events on the US economic calendar this week include:

• JOLTS Job Openings (Tuesday): A closely watched indicator of labor market health.
• Q2 GDP Estimate (Wednesday): After a lackluster first quarter, a rebound is expected to suggest resilience in economic activity.
• FOMC Meeting (Wednesday): With inflation still running hot, the Federal Reserve is expected to maintain its current stance rather than signal any immediate shift in policy.
• Core PCE Inflation (Thursday): June’s print is anticipated to show a slight uptick to 0.3% month-over-month, reinforcing the Fed’s cautious approach.
• Non-Farm Payrolls (Friday): The week concludes with this pivotal jobs report, which could tip the balance in rate expectations for the months ahead.

Together, these data points are likely to reinforce the Federal Reserve’s current “wait-and-see” approach, dampening speculation about a rate cut as early as September.

Dollar Outlook: Consolidation, Not Collapse

Amid this backdrop, the US dollar appears poised for a period of consolidation rather than dramatic movement. With the DXY index hovering in a stable range, there’s potential for it to grind higher toward the 98.50–99.00 zone—provided the economic data meets expectations. Resilient growth and sticky inflation will likely validate the Fed’s patient stance and support the greenback in the short term.

Eurozone: Under the Radar, But Not Without Risk

While much of the spotlight remains on the US, the eurozone is quietly facing its own set of economic challenges. Growth momentum in the region appears to be stalling, with expectations that second-quarter GDP will show a flat reading—an abrupt slowdown from the 0.6% expansion in Q1.

Inflation, too, is losing steam. July’s flash estimate for eurozone consumer prices is expected to dip below the European Central Bank’s 2.0% target, adding pressure on policymakers. With only a 15% chance of a rate cut priced in for the ECB’s September meeting, markets may be underestimating the likelihood of further easing. A weak data print this week could shift that narrative quickly.

Data-Driven Markets in the Week Ahead

The US-EU trade deal has provided temporary calm, but it’s the avalanche of macroeconomic data that will ultimately determine the market’s next moves. For now, the dollar remains supported by relatively strong fundamentals and a central bank in no rush to pivot. Meanwhile, the euro could come under pressure if growth and inflation trends disappoint.

As the week unfolds, investors should prepare for volatility and watch closely as the tug-of-war between economic resilience and monetary policy plays out across both sides of the Atlantic.