The euro remains under pressure after the European Central Bank left interest rates unchanged following June's hike, while reiterating that future decisions will remain data dependent. Although eurozone inflation slowed further in June, policymakers acknowledged that renewed strength in energy prices, driven by escalating tensions in the Middle East, could complicate the inflation outlook and keep the possibility of another rate increase later this year on the table.
Markets are now focused on September as the next realistic window for any policy adjustment.
At the same time, expectations for the Federal Reserve remain relatively balanced. Investors continue to anticipate that U.S. policymakers will avoid immediate tightening, but stronger Treasury yields and renewed demand for the U.S. dollar as a safe haven have limited upside potential for EUR/USD. The conflict involving Iran, attacks on commercial shipping in the Red Sea, and oil prices approaching $100 per barrel continue to support defensive positioning across global markets.
Macro data shifts attention toward inflation and central banks
Recent macroeconomic releases suggest that both economies are entering a more uncertain phase. Eurozone inflation has moderated compared with previous months, but higher oil prices threaten to slow the disinflation process. In the U.S., markets continue to monitor incoming inflation and labor market data ahead of the next Federal Reserve meeting, as policymakers assess whether elevated energy costs could offset signs of cooling domestic demand. As a result, interest rate expectations remain one of the primary drivers of EUR/USD direction.
Growing geopolitical uncertainty has also increased volatility across currency markets. Any further escalation in the Middle East that pushes energy prices even higher would likely strengthen demand for the U.S. dollar through its traditional safe haven role. Conversely, any signs of easing geopolitical tensions or softer U.S. inflation could quickly improve sentiment toward the euro.
Technical outlook points to growing downside risks
The technical picture has weakened noticeably. As shown on the chart, EUR/USD has broken below the lower boundary of the previous consolidation range near 1.1390 to 1.1400, which has now turned into immediate resistance. The pair remains below its short, medium, and longer-term moving averages, confirming that bearish momentum is still dominant.
A recovery above 1.1400 would be required to stabilize sentiment and allow buyers to challenge resistance in the 1.1420 to 1.1470 area. Until then, rallies may continue to attract selling interest. As written in EUR/USD holds inside key range as ECB decision and Middle East risks keep traders cautious, failure to reclaim former support keeps the focus on the recent lows around 1.1370, with a deeper decline toward 1.1350 becoming increasingly likely if the U.S. dollar continues to benefit from higher yields and geopolitical uncertainty.
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