The EUR/USD pair edged higher in early trading on Monday, reversing Friday’s sharp losses sparked by geopolitical escalations. With Middle East tensions showing signs of containment and investors regaining risk appetite, the pair climbed back above the 1.1580 level after dipping to 1.1490 on Friday.
Easing Geopolitical Risks Weigh on the US Dollar
The safe-haven US Dollar (USD), which surged late last week following Israel’s military strike on Iran, has come under pressure again. Despite continued clashes over the weekend, fears of a broader regional conflict have eased, particularly as Iran refrained from threatening oil transit through the Strait of Hormuz.
The de-escalation, coupled with diplomatic efforts from Russia, Cyprus, and the United States, has calmed market nerves, encouraging a rotation out of USD and back into risk-sensitive currencies like the Euro.
Focus Shifts to Fed Policy Decision and Trade Uncertainty
Markets are now looking forward to the next Federal Reserve (FOMC) monetary policy meeting taking place on Wednesday, June 19. While the Federal Reserve is expected to keep rates unchanged, fresh soft macroeconomic data continues to bolster speculation about a rate cut in September, as futures the CME Group is pricing a 66% chance or greater of a cut in September.
At the same time, uncertainty around tariffs and insufficient needed trade deals, particularly with China, cause continued drag on the USD. The uncertainty around rare earth commerce is a reason to call into question the permanence of any trade deal, putting additional pressure on the Greenback.
Eurozone Data Disappoints, but Technical Setup Remains Bullish
Despite the disappointing Eurozone industrial production data weaker than expected down 2.4% MoM in April due to ongoing trade uncertainty the technical outlook for the EUR/USD pair remains in a positive position. The pair is still above key support at the 1.1500-1.1495 area with the 4-hour RSI remaining above 50, suggesting bullish activity is still developing. The immediate resistance is at 1.1615-1.1630.
A breakout above that area could lead to moves toward the 1.1680 level. For now, if the pair breaks down below 1.1495, the next support is considerably lower at 1.1460, leading to the possibility of underwhelming bullish activity if it breaks.
Conclusion
The recovery seen in EUR/USD denotes renewed strength in the Euro EUR/USD -0.18% following easing geopolitical fears and potential Fed policy ease which sees safe-haven flows move aside for the time being. As long as the pair continues to hold above 1.1500, the bullish thesis remains in place and traders will be watching the FOMC’s cues for the next directional move.
About The Author
