EUR/USD is experiencing a significant decline. The pair reached a low of $1.1411 on Friday and made a slight attempt to recover toward $1.1500 on Monday. However, this bounce should be interpreted accurately: it is merely a partial relief within a firmly established bearish framework, rather than a sign of reversal. The decrease from the year-to-date peak of $1.2080 established in February to the present $1.1411–$1.1415 range signifies a reduction exceeding 5.3% within a few weeks, highlighting the most substantial single-week decline since April 2024 and the lowest price point since August 2025. The pair has breached the 52-week moving average, fallen through the ascending trendline that linked all significant lows since August, and is currently positioned below both the 50-day and 200-day Exponential Moving Averages at the same time — a setup that in technical analysis indicates not merely a fleeting decline but a substantial shift in momentum. The RSI and Percentage Price Oscillator have reached their lowest points in more than a year. The death cross, characterized by the 50-day EMA crossing beneath the 200-day, is currently taking shape. All significant technical indicators are aligned, and they indicate a downward trend.
The connection between oil prices and EUR/USD is clear-cut — it stands as one of the most straightforward transmission mechanisms in the global currency markets, and the data illustrates this explicitly. Barclays strategist Leftheris Farmakis provided a clear quantification of the relationship: the euro typically declines by about 0.5% for every 10% rise in oil prices. With Brent crude up more than 42% since the Iran war started in late February — touching $106.50 per barrel intraday Monday before retreating to $101–102, and WTI crossing $100 per barrel overnight before pulling back to $94–95 — the implied mechanical headwind for EUR/USD from energy alone is approximately 2% or more, purely from the oil channel. The natural gas doubling effect should be considered — where the euro experiences a 2.5% decline whenever European natural gas prices double — indicating that the energy-driven depreciation pressure on the euro is likely to be the prevailing influence on the pair in the near term. Europe exhibits a significantly higher structural vulnerability to disruptions in Middle Eastern energy compared to the United States. The continent relies significantly on imports for its energy requirements, with an industrial sector that demands more energy in relation to GDP. Additionally, its closeness to the conflict zone accelerates the economic impact. When Volkswagen reveals 50,000 job cuts — a direct result of escalating energy costs severely impacting European industrial margins — this is not merely a geopolitical headline for markets to digest and move past. This serves as a crucial data point that adjusts European growth expectations, reflects the flexibility of ECB policy, and consequently impacts EUR/USD in real time.
The energy channel accounts for a significant portion of the structural selling pressure on EUR/USD, while the heightened demand for the safe-haven dollar due to the Iran war is intensifying each fluctuation. The U.S. Dollar Index (DXY) experienced a brief rise above 100 on Friday, marking its first occurrence since November. However, it saw a decline of 0.41–0.50% on Monday, settling between 99.68 and 99.95. The recent retreat provided EUR/USD with a boost on Monday morning, pushing it toward $1.1500. However, the underlying case for dollar strength remains intact despite a modest half-point pullback in the DXY. MUFG articulated clearly: it is challenging to overlook the immediate risks associated with a potential continuation of U.S. dollar strength. The magnitude of energy price hikes, coupled with a lack of clear solutions, is expected to maintain elevated yields, adversely affecting growth projections and equity markets. The dollar’s position as the global reserve currency and main safe-haven asset is being significantly reinforced by the Hormuz crisis. Capital previously held in euros, yen, and emerging market currencies is shifting into dollar-denominated assets. This shift has mechanical implications for EUR/USD that are not influenced by any decisions made by the Fed or ECB. The Japanese yen remained close to ¥160 per dollar, while the sterling was trading at approximately $1.33 following last week’s drop. Meanwhile, EUR/USD at $1.1415 reflects the overall strength of the dollar, surpassing other cross-currency factors.
The current technical structure of EUR/USD is sufficiently detailed for trading, with clearly established invalidation levels at each price point. The immediate battleground is the 1.1355–1.1394 support zone — defined by the 38.2% Fibonacci retracement of the entire 2025 advance, the April 2025 high-close, and the July 2025 swing low. This represents the most critical structural support that exists between the current price levels and a potential deeper correction. Should EUR/USD approach this zone, technical analysts anticipate a significant reaction, as the convergence of various long-term reference points establishes a natural accumulation zone for buyers who have been poised for this precise pullback. Below that support, $1.1276 represents the next significant level — where the 2023 high aligns with the median-line in the upcoming weeks. A decisive break below $1.1276 would indicate that the current correction is not merely a routine continuation — it would suggest that a more substantial trend reversal is in progress, aiming for the 2024 high-week close and the May low-week close at $1.1164. On the resistance side, the scenario is clearly outlined. The 1.1411 August 2025 low — which the pair touched on Friday and is attempting to hold above on Monday — is the first line. Above that, 1.1497 is initial resistance defined by the March 2020 and March 2022 swing highs. The critical zone is $1.1571–$1.1598, where the 52-week moving average and the January low-close intersect. A weekly close above $1.1598 would represent the minimum technical condition indicating that a significant low is established. Ultimately, the bulls will not regain structural control until EUR/USD successfully reclaims the range of $1.1747–$1.1775, which represents the high-week close level for 2025. That is presently over 3% higher than Friday’s closing value, and all technical indicators suggest it will not be revisited in the near future.
The Federal Reserve meeting on Wednesday is essentially a non-event regarding rate changes — the CME FedWatch tool indicates a nearly 100% probability of maintaining the current rate at 3.50%–3.75%. Goldman Sachs released a note last week forecasting that the Fed will maintain rates at their current levels through the majority of 2026, with a potential hike in December. Should this prediction gain momentum, it could represent the most favorable scenario for the dollar in relation to EUR/USD. September now indicates a mere 45% likelihood of Fed easing, reflecting a significant adjustment from prior expectations that leaned towards a July action. Traders on Polymarket and Kalshi are anticipating a maximum of one rate cut for the year. The upcoming dot plot update on Wednesday — the Fed’s Summary of Economic Projections — will either validate the hawkish trend or counter it. Should the median dot transition from two cuts to one cut, or if any dots indicate rate hikes within the projection horizon, EUR/USD will decisively fall below $1.1392, paving the way to $1.1276 without delay. If Powell characterizes the oil shock as temporary and the dot plot stays the same with two cuts in 2026, EUR/USD may experience a technical relief bounce towards $1.1500–$1.1507 — the March 9 low — but this does not alter the medium-term bearish trend as long as the pair remains below $1.1598.
The European Central Bank convenes on Thursday, encountering a more intricate communication challenge compared to the Fed. The ECB, similar to the Fed, is widely anticipated to maintain rates at their current levels. In contrast to the Fed, the ECB is navigating an economic landscape where energy price inflation could prove to be significantly more damaging — adversely affecting growth, employment, and industrial output all at once, while simultaneously driving headline inflation upward. The Rabobank assessment accurately reflects the current dilemma: the policy outlook is now closely linked to the developments in the Middle East, resulting in a distinctly divided perspective. The ongoing energy shock likely does not justify immediate rate increases; however, the ECB is poised to indicate its willingness to respond should conditions worsen, with the likelihood of earlier hikes now appearing more pronounced than previously anticipated. The ECB increasing rates during a period of economic slowdown — indicative of stagflation — would pose the most unfavorable outcome for the eurozone economy, marking a total shift from the monetary easing cycle that had been bolstering EUR/USD until 2025. The yield differential is a contributing factor that offers some support for the euro. In recent weeks, euro-area yields have risen more significantly than U.S. rates, resulting in a narrower EUR/USD interest rate spread that favors the euro. MUFG identified this as a contributing element. Danske Bank recognized the situation as well, but deemed it temporary — the ECB is highly unlikely to raise rates in response to a pure supply shock, particularly when long-term inflation expectations show minimal change, indicating that the yield spread rationale for EUR strength rests on unstable grounds.