EUR/USD extended its rally on Tuesday, climbing to 1.03518 in New York after bouncing off 1.02925 earlier in the session. The dollar’s earlier strength, driven by tariff concerns and rising U.S. yields, faded despite Powell’s congressional testimony, which largely echoed his January FOMC remarks. This left investors focusing on upcoming U.S. CPI, PPI, and retail sales data for clearer direction. EUR/JPY gains and narrowing German-U.S. spreads provided additional support, helping EUR/USD end the session up 0.41%.

The technical outlook remains mixed, with EUR/USD consolidating near the 1.0350 area, reinforcing the theme of investor uncertainty. Resistance is seen at 1.0380, with stronger levels at 1.0450 and the 1.0550 upper range boundary. Support lies at 1.0290, followed by 1.0200, a key psychological level. With the pair holding near key moving averages and showing signs of indecision through doji candles on the monthly chart, a breakout above 1.0380 or below 1.0290 could be the catalyst for the next sustained move.

U.S. inflation data and Fed rhetoric will be crucial in shaping EUR/USD’s near-term direction. A hotter-than-expected CPI reading could boost U.S. yields and strengthen the dollar, widening rate differentials and potentially sending EUR/USD back towards 1.0200 or even parity. Alternatively, weaker inflation could reinforce the idea of Fed rate cuts, reducing the dollar’s advantage and opening the door for EUR/USD to retest 1.0450-1.0550. With Powell and Bostic also speaking on Wednesday, traders should brace for volatility, as policy expectations remain the key driver for EUR/USD.