The EUR/USD pair managed to close the week in positive territory, but not before trading as low as 1.1499, its lowest since late March and still far below the previous weekly open. The US Dollar (USD) appreciated throughout the first half of the week on the back of renewed tensions between the United States (US) and Iran, changing course on Thursday on headlines indicating an upcoming end to the Middle East conflict.
War drums sounding low and low
The second week of June started with the US and Iran exchanging fire, despite the agreed ceasefire, which escalated after the latter downed an American helicopter, triggering Washington’s response with more strikes and US President Donald Trump’s threats to “hit hard” Iran.
Things changed on Thursday, when Trump announced that an agreement was almost done and that a deal would be signed imminently, subject to Iran’s signature. He also claimed the Strait of Hormuz would reopen shortly after the signing. Crude Oil prices edged sharply lower with the headlines, and the USD fell accordingly as optimism reigned. On Friday, however, hopes began to fade amid reports that Iran’s terms and the US terms are far from near. The USD recovered modestly on Friday as optimism faded, but it has not been lost.
US Dollar before the Federal Reserve
The Greenback surged on safety demand, also boosted by hot US inflation readings, reinforcing speculation that the Federal Reserve (Fed) will have to hike interest rates before the year is over. The US Consumer Price Index (CPI) rose to its highest level in three years at 4.2% in May, following the 3.8% posted in April. Core annual CPI was up 2.9%, after printing 2.8% in the previous month.
The Fed will announce its monetary policy decision on Wednesday. Market participants anticipate the benchmark interest rate will remain unchanged at the current range set at 3.50% to 3.75%. But there are two big ifs: One, it will be the first one chaired by Kevin Warsh, and two, the central bank will release a fresh Summary of Economic Projections (SEP).
The Federal Open Market Committee (FOMC) is between a rock and a hard place. Hiking interest rates is a tool designed to counter consumer-driven inflation, not inflation coming from a supply shock like the one resulting from the Iran war. Even further, the central bank is being pressured to cut rates while data points in the opposite direction.
Finally, it’s worth noting that Chair Warsh is a believer in hard data but skeptical about forward guidance. It’s hard to believe he will announce relevant changes to the ongoing FOMC ways, but everything is possible. His words will be scrutinized to the coma in search of hints on what the Fed may do in the foreseeable future.
Euro after the European Central Bank
In the Old Continent, the European Central Bank (ECB) had a monetary policy meeting, and as expected, ECB officials hiked interest rates by 25 basis points (bps), the first hike in three years. With this decision, the interest rate on the main refinancing operations, the interest rates on the marginal lending facility and the deposit facility stood at 2.4%, 2.65% and 2.25%, respectively.
ECB President Christine Lagarde offered a press conference, in which she hinted at additional hikes amid broadening inflationary pressures, while adding that growth risks are now skewed to the downside. Lagarde failed to surprise investors with the hike decision, mostly seen as symbolic, having no real impact on the Euro (EUR). Fears of stagflation remain at the top of policymakers’ concerns, although Lagarde tempered preoccupations.
Busy calendar ahead
Other data released these days showed that the German Harmonized Index of Consumer Prices (HCIP) rose 2.7% YoY in May, as previously estimated. Across the pond, the US University of Michigan (UoM) reported that the Consumer Sentiment Index rose to 48.9 in June, up from 44.8 in May, according to the preliminary estimate..
In the upcoming sessions, the Fed’s monetary policy decision stands out, yet the macroeconomic calendar will include other relevant figures. Germany will publish the June ZEW Survey on Economic Sentiment and the May Producer Price Index (PPI), while the Eurozone will publish the final estimate of the May HICP. As for the US, the focus will be on May Retail Sales and employment-related data.
Following central banks’ announcements, comments from ECB and Fed officials will be back in fashion.
EUR/USD Technical Outlook:
In the daily chart, EUR/USD trades with a bearish near-term bias as spot remains below the 20-, 100-, and 200-day Simple Moving Averages (SMAs), which cap recovery attempts. Momentum studies reinforce the downside tone, with the 14-period Relative Strength Index (RSI) indicator hovering in the low-40s and the 14-period Momentum indicator in negative territory, both lacking clear directional strength. The lower low, however, hints at mounting selling pressure.
On a weekly basis, EUR/USD is neutral to bearish. The pair holds comfortably above the 100- and 200-week simple moving averages (SMAs) at 1.1279 and 1.0979, but it is capped by the 20-week SMA at 1.1674. The weekly RSI indicator ticks lower at 46.7, while the Momentum indicator seesaws just below its midline, both lacking clear directional strength.
On the topside, initial resistance is located at the 20-week SMA around 1.1674; a sustained break above this barrier would be needed to revive bullish traction toward higher weekly highs, yet as long as the pair remains below 1.1700, the odds for a firmer advance remain limited. On the downside, first support emerges at the 1.1500 threshold, closely followed by the long-term static support area around 1.1470. Once below the latter, sellers are likely to add pressure and push the pair towards 1.1400.
(The technical analysis of this story was written with the help of an AI tool.)
