EUR/USD has decreased by about 630 pips from its year-to-date peak of 1.2080 reached in January to the present range of 1.1460 to 1.1495 — representing a decline of approximately 5.2% over the course of a few weeks. That does not represent a gradual repricing. This represents a significant directional breakdown, intensified by one of the most severe geopolitical energy shocks that the global economy has faced in decades. The pair is currently at its lowest level since November of last year, having breached a vital ascending trendline that links the lowest swing points since July 2025. The technical outlook is poised to deteriorate considerably before any potential recovery occurs. A death cross is emerging — the 50-day Weighted Moving Average is approaching the 200-day WMA, and upon the completion of this cross, the resulting downtrend signal generally draws in new institutional selling, thereby intensifying the prevailing directional movement. The Average Directional Index has risen to 33, indicating that the downtrend is not merely maintaining its pace — it is gaining strength. The downside target, upon a decisive breach of 1.1460, is 1.1390 — the low from July 2025 that currently serves as the next significant structural support level.
The U.S. Dollar Index has surpassed the 99.70 resistance level on the 4-hour chart, reaching 100.08. It is currently positioned above both its 50-period and 200-period moving averages, indicating a strong bullish momentum for the dollar overall. The RSI on DXY is nearing 65, indicating that the upward movement is not yet fully spent, but it is extended enough to merit attention for potential consolidation prior to the next advance toward 100.60 and ultimately 101.00. The DXY is poised to achieve its strongest two-week rally since the U.S. presidential election in November 2024. The context of dollar strength, reminiscent of a post-election safe-haven surge, illustrates the significant impact the Iran war has had on currency markets. The euro’s particular weakness in this crisis is rooted in structural issues rather than cyclical factors, extending beyond mere sensitivity to oil prices. Since 2022, European nations have been diligently reconstructing their energy supply chains following the disruption caused by Russia’s invasion of Ukraine, which ended their reliance on Russian natural gas. The selected alternative source was Qatar along with other exporters from the Middle East — specifically the suppliers currently impacted by the closure of the Strait of Hormuz. The bloc relies heavily on gas imports, and this dependency has become the most critical factor influencing the European industrial landscape and inflation trends.
The German IFO Institute has provided a detailed assessment of the situation: even in a scenario where the Iran war concludes soon and oil prices decrease, German inflation is projected to rise from the earlier anticipated 2% to 2.4% by the end of 2026. Should the conflict continue and oil prices remain stable, German inflation is projected to reach 3%, while GDP growth is expected to decelerate from the already modest forecast of 1.2% to a mere 0.6%. Germany stands as the largest economy within the eurozone — these figures extend beyond the confines of Germany’s borders. They permeate every trade relationship, every supply chain, and every industrial cluster within the bloc. Volkswagen’s recent job cuts serve as an early indicator of the impact that sustained energy price pressure has on the European industrial sector. This situation is not merely an isolated corporate occurrence; it represents the forefront of a wider competitiveness crisis that elevated energy costs will instigate across manufacturing-heavy eurozone economies.
The ECB and EU leadership have openly countered the notion that this mirrors the 2022 energy crisis, emphasizing that gas prices are significantly lower than the exceptional levels observed at the onset of the Ukraine war. The reassurance provided is technically correct, yet it may be strategically premature. The essential factor is duration. If the Strait of Hormuz remains effectively closed into autumn — when European heating demand creates a seasonal surge in energy consumption — the scenario in which EUR/USD falls below parity becomes analytically conceivable. Alexander Kuptsikevich from FxPro emphasized that a lengthy closure extending into the colder months could lead to a parity test for the pair. The current situation does not represent a base case; however, the market is starting to assign a significant probability to it. This probability appears to rise each week that the conflict continues without a resolution.