Euro Slips as Geopolitical Risk Lifts Dollar Haven Appeal

Key Moments

Geopolitical Tensions Pressure Euro Below 1.1600

The EUR/USD pair is trading weaker around 1.1575 in early European dealings on Tuesday, breaking a three-day run of gains. The Euro (EUR) is losing ground against the US Dollar (USD) as market participants stay defensive amid escalating US-Iran frictions and disruption risk around the Strait of Hormuz.

According to a report cited from Reuters on Tuesday, the UK Maritime Trade Operations (UKMTO) stated it received notice of an incident in this key shipping route. UKMTO indicated that a company security officer reported a vessel had been hit by an unidentified projectile while exiting the strait.

On Monday, US President Donald Trump said that he is not interested in renewing the expiring agreement with Iran. In parallel, Iran’s Foreign Ministry spokesman Esmail Baghaei said that a deal has remained out of reach due to security complications and the “obstructionist behavior of destructive elements,” adding that the US must remove its blockade.

Persistent Middle East tensions are supporting safe-haven flows into the Greenback, posing a near-term drag on EUR/USD. At the same time, reduced expectations for a Federal Reserve (Fed) rate increase in September, following softer US macro data, may limit the Dollar’s upside.

Fed Expectations Ease After Weak US Data

Recent US data releases have dampened the outlook for tighter Fed policy. Figures published last week showed that US Retail Sales fell in July for the first time in nine months. This followed unexpected job losses in the previous month alongside subdued inflation readings.

Positioning in interest-rate futures reflects this shift. Traders are assigning a 35% probability to a rate hike at the Fed’s September meeting, down from 47% a month earlier, based on the CME FedWatch tool.

Fundamental Backdrop: Eurozone Resilience and Yield Spread Dynamics

Strategists at Scotiabank point out that the recent “firming trend in the EUR reflects economic resilience in the Eurozone despite headwinds from energy and drought conditions as well as the narrowing yield spreads between the Eurozone and the US.” They emphasize that the mix of steady underlying activity in the Euro area and a reduced interest-rate disadvantage versus the US is underpinning demand for the common currency.

Technical Picture: Bullish Bias Intact Above Key Moving Average

On the daily chart, EUR/USD maintains a mild bullish short-term stance, with spot trading near the daily opening pivot at 1.1573 while remaining supported by the 100-day simple moving average (SMA) positioned just below. The pair is also holding above the 20-day Bollinger middle band around 1.1498, which reinforces a constructive technical tone. The Relative Strength Index (14) stands at 62, indicating firm, though not overstretched, upside momentum.

To the upside, initial resistance is identified at the 20-day Bollinger upper band, located near 1.1642, where buying interest may begin to soften. On the downside, immediate support is seen at the 100-day SMA at 1.1570, followed by the Bollinger middle band close to 1.1500 and the lower band around 1.1355. Together, these levels outline a broader demand area in the event of a deeper correction.