Key Moments
- Prolonged US-Iran tensions and political rhetoric have kept EUR/USD trading in a confined range.
- Markets are heavily pricing multiple ECB rate hikes by year-end, limiting further euro upside from policy expectations.
- EUR/USD is oscillating between support near 1.1650 and resistance around 1.18, with traders awaiting key US data releases.
US Dollar Steadies as Geopolitical Standoff Continues
The US dollar has recovered some lost ground as both Trump and Iran dismissed proposals aimed at ending the conflict, labeling them unacceptable and leaving any potential agreement distant. In addition, Israeli PM Netanyahu confirmed that the removal of Iranian nuclear material remains an active war objective, and separate reports indicated that Trump told Netanyahu directly he wants to go in on Iranian nuclear sites.
This stream of geopolitical headlines has persisted for several weeks and has effectively kept trading conditions rangebound, with market participants reluctant to commit to a clear directional view while they wait for fresh catalysts.
From a policy perspective, the Fed is gradually moving away from an easing stance in response to resilient US data and elevated energy prices. A reopening of the Strait could initially pressure the dollar, as a sharp drop in oil prices would likely revive rate cut expectations.
Beyond that potential short-term reaction, attention would be expected to return to the Fed and incoming data. An end to the conflict and a pickup in economic activity could keep inflation elevated for longer and potentially necessitate rate hikes to bring it sustainably back to the 2% target that the Fed has been missing since 2021.
Another possible outcome is that the Strait remains shut for an extended period, keeping oil prices high. In that case, the risk is that the Fed adopts a more hawkish tone, which could deliver a notable lift to the dollar given the current bearish positioning.
Euro Outlook: Aggressive Market Pricing Limits Upside
On the euro side, a June rate increase is now seen as almost certain, with policymakers signaling that only a substantial change in Middle East developments and oil prices would be sufficient to stop them from proceeding with a hike.
Market pricing currently reflects an 84% probability of a June move and a total of 68 bps of tightening by year-end, implying almost three rate hikes. This aggressive stance makes it more difficult for the euro to extend gains purely on interest rate expectations, as the ECB is unlikely to “outhawk” existing market assumptions.
Recent data have underscored an unfavorable mix of slowing economic activity and rising price pressures. Against this backdrop, there has been no compelling justification for multiple hikes. The ECB appears inclined to proceed cautiously and deliver what can be considered an insurance hike if conditions are largely unchanged heading into June.
After that, the central bank is expected to remain on hold until September while it collects additional information over the summer.
EUR/USD Technical Picture
Daily Timeframe: Range Defined by 1.1650 Support and 1.18 Area
On the daily chart, EURUSD bounced around the 1.1650 support and rebounded into the 1.18 handle. Price action on this timeframe offers limited additional insight, prompting a closer look at the lower timeframes.
4-Hour Timeframe: Compression Between Trendline Support and Overhead Resistance
On the 4 hour chart, we can see the price action is now confined between the resistance zone around the 1.18 handle and the upward trendline. From a risk management perspective, the buyers will have a better risk to reward setup around the trendline to keep pushing into new highs.
The sellers, by contrast, are likely to continue fading rallies into the resistance zone with stops defined above it, aiming for a move back toward the 1.1650 support region.
1-Hour Timeframe: Short-Term Tactics Within a Well-Defined Range
On the 1 hour chart, there’s not much we can add here as the sellers will likely continue to lean on the resistance to keep targeting new lows, while the buyers will either wait for a pullback into the trendline or a break above the resistance to pile in for new highs. The red lines define the average daily range for today.
Key Levels Overview
| Timeframe | Support | Resistance | Notes |
|---|---|---|---|
| Daily | 1.1650 | 1.18 handle | Broad trading band; limited directional signals |
| 4-Hour | Upward trendline / 1.1650 | 1.18 handle | Range compression between trendline support and overhead resistance |
| 1-Hour | Trendline area | Resistance near 1.18 | Intraday flows guided by resistance selling and trendline buying |
Data Watch: US Inflation and Activity Releases Ahead
In terms of upcoming catalysts, tomorrow brings the US CPI report. On Wednesday, the market will receive the US PPI data. On Thursday, attention will shift to the US Retail Sales report and the latest US Jobless Claims figures, all of which could influence expectations for Fed policy and, by extension, the EUR/USD trajectory.
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