EUR/USD holds inside key range as ECB decision and Middle East risks keep traders cautious
EUR/USD remains trapped in a well-defined consolidation range ahead of the European Central Bank meeting, with investors showing little willingness to establish large directional positions before the policy announcement and Christine Lagarde's press conference. Markets overwhelmingly expect the ECB to leave its deposit rate unchanged at 2.25%, but forward guidance will be closely scrutinized after June's rate hike.
Persistent energy-related inflation risks stemming from the conflict in the Middle East continue to support expectations that additional tightening later this year cannot be ruled out, even as recent eurozone inflation data moderated.
U.S. macro outlook keeps dollar supported
The U.S. dollar continues to find support from expectations that the Federal Reserve will maintain a restrictive policy stance despite softer inflation earlier this month. Attention now shifts to weekly jobless claims and Friday's flash PMI data, which could influence expectations ahead of next week's FOMC meeting. While incoming U.S. data have not significantly altered the policy outlook, resilient labor market conditions continue to limit downside pressure on Treasury yields, preventing a stronger euro recovery.
Middle East tensions remain an important driver
Geopolitical developments remain a major source of uncertainty for currency markets. Renewed escalation involving the United States and Iran, together with risks to shipping routes and higher crude oil prices, has reinforced inflation concerns on both sides of the Atlantic. Rising energy prices could complicate the ECB's policy outlook by slowing disinflation while simultaneously weighing on eurozone growth. This combination has limited investors' appetite for aggressively buying the euro despite expectations that the ECB may retain a relatively hawkish bias.
Technical outlook points to continued consolidation
The hourly chart continues to highlight a broad sideways range between approximately 1.1390 and 1.1470. Repeated failures to establish a sustained move above the upper boundary suggest buyers remain cautious ahead of today's ECB decision. At the same time, the pair continues to find support around the lower edge of the range, while longer-term moving averages are flattening, confirming the absence of a strong directional trend. A confirmed breakout above 1.1470 would improve the near-term outlook and could open the way toward 1.1500. Failure to hold above 1.1390 would expose the pair to a deeper correction toward the 1.1360 to 1.1340 area.
A breakout from the current range, as I previously warned in the article EUR/USD holds key range as traders await ECB signals and monitor Middle East risks, will determine the direction of the pair's next significant move.
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