While the euro and the pound sterling are gradually recovering against the US dollar, traders and investors are gearing up for a busy week of US macroeconomic data, headlined by two of the most important indicators — employment and inflation.

These key indicators are expected to have a major impact on the future path of the Federal Reserve's monetary policy and are drawing heightened attention from global markets. Understanding trends in employment and inflation dynamics is essential for assessing the health of the US economy and forecasting future interest rate moves.

In particular, labor market data — traditionally published on the first Friday of each month but postponed due to the partial shutdown — will provide a read on hiring strength and unemployment. Strong employment figures typically point to resilient economic growth and can reinforce expectations of further monetary tightening, which in turn can support the US dollar.

At the same time, the inflation report, which measures the pace of consumer?price growth, plays an equally important role. High inflation could push the Fed toward a more aggressive stance to keep rates at current levels to rein in price pressures. Conversely, a slowdown in inflation could signal the need for a more cautious approach from the regulator.

The employment report for January will be published on Wednesday, while the Consumer Price Index is due on Friday.

The employment release is expected to be more informative than usual. In addition to the monthly numbers on job creation and the unemployment rate, every January report includes an annual benchmark revision to payrolls. The crucial update is expected to show a noticeable downward revision to the pace of job growth over the past year.

On the monthly metrics, economists forecast payrolls to increase by 69,000 in January. Such a result would be the best in four months and would provide some reassurance that the labor market is not deteriorating. The unemployment rate is expected to remain at 4.4%, near a four-year high.

In the CPI data, economists will be looking for further evidence that inflation is on a downward trend after prior reports were complicated by the record-length government shutdown last year. Economists expect the core measure of inflation, which excludes food and energy, to rise at the slowest annual pace since early 2021.

Recall that in January, the Fed decided to hold rates steady, citing signs of stabilization in the labor market while inflation remained elevated. Fed governors Christopher Waller and Stephen Moore — both of whom voiced opposition to another rate cut — will speak this week, which could add to market volatility.

Technical outlook for EUR/USD

Technically, EUR/USD is consolidating after heavy selling. Buyers should consider taking 1.1870 — only that move would open the way to test 1.1910. From there, a push toward 1.1950 is possible, but doing so without support from major players will be difficult. The farther target is 1.1990. On the downside, I would expect robust buying activity only at about 1.1835. If there are no buyers there, it would be better to wait for a new low at 1.1805 or to open long positions from 1.1770.

Technical outlook for GBP/USD

As for GBP/USD, pound buyers need to take the nearest resistance at 1.3630. Only that would make a move toward 1.3660 feasible; breaking above that would be quite difficult. The farther target is around 1.3690. On the downside, bears will try to seize control of 1.3585. If they succeed, a breakout would be a serious blow to bulls and could push GBP/USD to 1.3545 with scope to extend to 1.3511.