EUR/USD continues to trade in a relatively narrow range around 1.1400 after recovering from last month's lows, but bullish momentum remains limited. Investors are reluctant to build large positions ahead of the latest U.S. CPI report and testimony from Federal Reserve Chair Kevin Warsh, both of which could reshape expectations for the Fed's policy path.
While recent U.S. labor market data has shown some moderation, Federal Reserve officials continue to emphasize that inflation remains the primary concern, keeping U.S. Treasury yields elevated and supporting the dollar.
Eurozone fundamentals remain mixed
The euro continues to receive support from the ECB's relatively restrictive policy stance following its June rate increase, but incoming macroeconomic data still point to sluggish economic activity across much of the eurozone. Manufacturing conditions remain weak, while services have shown greater resilience. Investors continue to weigh sticky inflation against slowing growth, leaving markets cautious about how much additional tightening the ECB will ultimately be able to deliver during the second half of the year.
Middle East tensions keep volatility elevated
Geopolitical developments remain an important driver for currency markets. Renewed tensions between the U.S. and Iran, together with risks surrounding shipping through the Strait of Hormuz, have pushed oil prices and global bond yields higher, increasing concerns that energy inflation could remain elevated. This environment generally favors the U.S. dollar through safe-haven demand and expectations that inflation may stay above central bank targets for longer. However, any meaningful de-escalation could quickly reduce demand for defensive assets and provide room for EUR/USD to recover.
Technical outlook points to continued range trading
The hourly chart shows EUR/USD remaining inside a well-defined consolidation zone between approximately 1.1390 and 1.1470. The pair recently rebounded from the lower boundary of this range, but it continues to trade below the longer-term moving average, suggesting buyers still lack full control. A sustained move above 1.1470 would improve the short-term outlook and expose the June recovery highs, while a decisive break below 1.1390 would increase the probability of another test of the 1.1350 support area. Until a breakout occurs, as stated in EUR/USD holds key support as geopolitical risks strengthen dollar demand, range-bound trading remains the dominant scenario.
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