The EUR/USD pair implied an effort to recover mildly early Wednesday. The pair fell sharply the day prior. The overall sentiment in the market remains risk-off as geopolitical tensions are rising in the Middle East, oil prices have spiked rapidly, and traders are waiting for clarity from the Fed regarding monetary policy.
At the time of writing, the Euro was trading just above 1.1500 and is unable to make up ground that is from almost 1% off of last week’s highs. In addition, the pair Wayne continues to be pressured by investors watching to see if the United States will engage militarily against Iran amid inflation and interest rate increases, anxieties that lead to fears that military engagement will expand into a broader conflict.
Geopolitical Turmoil and Oil Surge Hurt Euro
The continued Israel-Iran conflict, now entering its sixth day, is a primary cause of market anxiety. Reports that President Donald Trump may be considering escalation in the form of direct strikes on Iranian targets, which would reveal that he intends to force a surrender, have elevated fears of a regional war. Oil prices jumped by over $3, following reports of this President’s intentions, with Brent at just shy of $75 per barrel; a 16% increase since May.
Because the Eurozone is a net oil importer, higher energy costs are particularly detrimental to its economy as they threaten both growth and inflation stability. As thus, there are increased pressures on the euro, even whilst recent data has been somewhat positive.
Weak US Retail Sales vs. Hawkish Fed Caution
In the US, May Retail Sales fell 0.9%, worse than the expected 0.7% decline, with April’s figure also revised downward. Despite signs of softening consumption, the US Dollar remains resilient on the back of geopolitical demand for safe-haven assets and expectations from the Fed.
The market anticipates that the Federal Reserve will keep interest rates unchanged in the 4.25%–4.50% range. However, focus will be on Chair Jerome Powell’s press conference and the updated dot plot for cues on future rate policy.
The CME FedWatch Tool now shows a 60% probability of a rate cut by September 2025, with traders pricing in two cuts by year-end. If the Fed signals dovishness, it could trigger renewed US Dollar weakness, offering the Euro some relief.
Bearish Momentum Capped by Resistance
EUR/USD confirmed a bearish reversal after falling under the triangle pattern on Tuesday, after breaking last week’s highs above 1.1600. The price is presently near the 1.1500 area, and the 4-hour RSI has remained below 50, indicating further risk to the downside. The current point of resistance is located at what was the former triangle base (1.1545), and support is currently located at 1.1477.
If selling pressure continues to build on the chart, downside targets of 1.1370 and 1.1315 are possible. Considering these scenarios, if the bulls can maintain a close above 1.1545, we could see a shift in momentum suggestive of further bullish intent and possible re-tests of resistance seen earlier in the month in the 1.1630–1.1640 area.
Conclusion
Until the Federal Reserve reveals its latest policy outlook, markets are expected to remain cautious. Geopolitical tensions and oil price shocks are keeping the Euro pinned, despite the Dollar’s mixed domestic signals.
If the Fed surprises dovishly, EUR/USD may attempt a climb above 1.1545. However, any hawkish tilt or escalation in Middle East tensions could drive the pair lower, with 1.1370 in focus.
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