The euro moved into a phase of cautious correction at the end of May after a strong rally in the first quarter. EUR/USD remains near the 1.1600 level, although pressure on the European currency has intensified amid rising demand for the US dollar as a safe-haven asset and shifting expectations regarding Federal Reserve policy.
ECB maintains hawkish rhetoric, but Europe’s economy is weakening
The main support for the euro at the moment is the stance of the European Central Bank. The regulator continues to signal its readiness to keep interest rates elevated for longer than markets previously expected due to persistent inflation in the services sector and ongoing energy-related risks. At the same time, signs of a slowdown in the eurozone economy are becoming more visible: industrial activity remains weak, while business growth continues to lose momentum. This creates a difficult dilemma for the ECB — fighting inflation without putting additional pressure on economic growth.
Dollar gains support from uncertainty surrounding the Fed
On the US side, markets remain highly sensitive to any signals from the Federal Reserve. Despite expectations of possible monetary easing later in 2026, the latest US inflation data came in above forecasts, temporarily strengthening the dollar and reducing investors’ appetite for risk. Additional support for the US currency comes from geopolitical tensions and increased volatility in commodity markets — conditions under which investors traditionally return to dollar-denominated assets.
Near-term outlook: high volatility without a clear trend
EUR/USD remains under selling pressure, with upside attempts limited by resistance in the 1.1640–1.1660 range, while bears continue trying to break below the 1.1600 support level. At this stage, the probability of a downside breakout toward 1.1580–1.1550 remains elevated; meanwhile, a move above resistance could trigger growth toward 1.1680–1.1700, where selling interest may reappear.
As I noted earlier in the article EUR/USD under pressure as markets renew bets on dollar, the pair’s further dynamics may largely depend on developments in the Middle East and the future policies of major central banks.
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