The EUR/USD pair is currently positioned around 1.1600, pulling back from earlier session peaks as the dollar regained strength on Wednesday, following two consecutive positive economic reports — ADP private payrolls recorded 63,000 compared to a consensus of 48,000, and the ISM Services PMI jumped to 56.1, marking its highest level since July 2022. The pair formed a doji candle near the January low at 1.1578 on Tuesday, a technical indicator that momentarily sparked optimism for stabilization. Those expectations are delicate. The overall pattern reveals a series of declining peaks and troughs, and every observer analyzing this chart is focused on the same threshold: 1.1670 is the resistance that needs to be surpassed for any optimistic scenario to gain legitimacy. The recent fluctuations in EUR/USD during the past week are largely unrelated to European monetary policy alone and are instead driven by a fundamental reassessment of American exceptionalism. As U.S.-Israeli strikes on Iran closed the Strait of Hormuz and pushed Brent crude to nearly $81, the market swiftly processed the implications: increased oil prices lead to elevated energy costs, elevated energy costs contribute to rising inflation, rising inflation results in the Fed maintaining its current stance for an extended period, and a Fed that remains steady supports a fundamentally stronger dollar. The DXY reached 99.4, marking a five-week high, as the ascending triangle in the dollar index broke out significantly at the beginning of the week, with buyers driving the price up to the resistance at the 99.50 level. The upcoming significant overhead resistance is the area that turned away buyers on three different occasions in 2025 — two times in November and once in August. The level remains intact, yet the directional pressure is evident.
The analytical framework from Macquarie deserves to be absorbed in this context. The company observes that the dollar often gains strength when the United States showcases effective international leadership. The First Gulf War in 1990-1991 was succeeded by a ten-year period of dollar supremacy. The shortcomings of the war on terror during the 2000s aligned with a decline in the dollar’s strength. The strikes on Iran were carried out with precision, as U.S. Central Command indicated that Iranian air defenses have been significantly weakened, along with the destruction of numerous ballistic missiles and drones. Currency markets are interpreting this as a reaffirmation of American leadership globally. The prevailing narrative, whether accurate or not, is influencing capital movements towards the USD and away from all other assets denominated in it. The repricing of the Fed rate cut is the mechanical force driving this change. Markets now reflect around 45 basis points of easing in 2026, a decrease from over 70% probability just a week prior. The likelihood of a June cut has decreased to 37%. Wednesday’s robust ADP and ISM data confirmed this direction: a strong labor market and a growing services sector provide the Fed with no immediate need to lower rates, while an energy-induced inflation surge eliminates any last bit of political justification for such action. Any data point that exceeds consensus now acts as a structural headwind for EUR/USD. The euro is not merely experiencing the effects of overall dollar strength. It possesses a particular vulnerability that the yen and pound do not exhibit to the same extent: Europe’s significant reliance on external energy sources. On Wednesday, European natural gas prices surged to €65 per megawatt hour. While this figure remains significantly lower than the €345 peak observed in 2022, it is the trend that markets are focusing on, rather than the specific price point itself. According to Capital Economics, maintaining the existing gas prices would contribute an additional 0.5 percentage points to inflation in the eurozone. The significance of this is substantial, as eurozone inflation was already on the rise prior to the onset of the Iran conflict: consumer prices increased from 1.7% to 1.9% year-over-year in February, while producer prices jumped 0.7% in just one month, contrasting sharply with average predictions of only 0.2%. Both readings exceeded expectations prior to the inclusion of any war-premium oil in the analysis.
The ECB finds itself in the exact situation it dreaded: inflation rising while economic momentum is weakening. The energy shock does not provide the ECB with the opportunity to lower rates; rather, it compels the central bank to maintain a tighter policy for an extended period, despite a slowdown in growth. This exemplifies the classic definition of stagflation, representing the most detrimental macroeconomic environment for a currency. The market is clearly reflecting that scenario, with EUR/USD being the instrument that showcases it most directly. The involvement of the U.S. and NATO introduces an additional aspect. The manner in which the United States carried out the Iran strikes — independently, without extensive NATO discussions — is being viewed as yet another move away from the transatlantic alliance structure that has supported euro credibility for many years. The political risk premium is still in its infancy and not yet quantified, but it undeniably exists and leans bearish for the euro, irrespective of the immediacy of economic transmission. The four-hour chart for EUR/USD presents a clear narrative. The doji candle printed at 1.1578 — the January low — on Tuesday suggests a slightly optimistic short-term outlook as it indicates a possible false breakdown. However, the overall framework completely negates that indication: a series of lower highs, lower lows, and a descending resistance trend line that has not been effectively tested at any moment since the breakdown commenced. The essential resistance level remains at 1.1670. As long as that level limits the potential gains, the technical outlook continues to be negative across all relevant timeframes for positioning. A decisive move above 1.1670 would first target 1.1700, followed by 1.1748, which was previously support but is now functioning as resistance, and then 1.1750, where the descending resistance trend line meets. The area between 1.1748 and 1.1750 is where sellers are concentrated, making it the point where any recovery effort is likely to falter.
On the downside, initial support is positioned at 1.1625, reflecting the highs observed in the previous four-hour candles. Below that, 1.1578 represents the January low, which has been tested and briefly breached. A clear close beneath 1.1578 brings the 1.1500 level into focus — a whole number that signifies a notable psychological and technical shift. If the energy shock intensifies and Hormuz stays closed for an additional two to three weeks, a decline into the low $1.10s is a possibility that should not be dismissed. This represents the tail risk scenario, rather than the base case — however, it must be considered and factored into position sizing. The Fibonacci level at 1.1686 is identified as the primary lower-high resistance within the larger framework, while previous support is noted at 1.1748, positioned above that level. For a true recovery to take shape, the price must first return to 1.1686, followed by 1.1748, before any significant change in the trend can be confirmed. Neither level has been convincingly tested since the breakdown. The sole situation that might challenge the dollar’s supremacy — and consequently elevate EUR/USD from its present position — hinges on USD/JPY. The pair is currently examining the same peaks that acted as resistance in February, with key levels grouped around 159.00 and subsequently 160.00 just above. As shown in late January, a shift in USD/JPY can significantly and promptly affect the DXY basket, which subsequently influences EUR/USD and GBP/USD. The yen exhibits a distinct safe-haven characteristic: during periods of heightened geopolitical risk, demand for the yen typically increases, irrespective of the movements in U.S. dollar flows. Support for USD/JPY on any pullback remains at 156.27, followed by 154.45-155.00, and then 153.67. The pivotal range that alters the entire scenario is 151.95-152.50 — if that level is breached, the dollar’s recent strength encounters a significant structural obstacle, and EUR/USD may initiate a substantial recovery from its current trading position. Currently, the short-term trend for USD/JPY is positive, with higher-low support remaining in place, which continues to bolster the strength of the dollar overall.
The GBP/USD ($Cable) reflects a comparable narrative. The falling wedge formation that persisted until last week’s close was invalidated by the dollar breakout, yet 1.3250 has thus far maintained its role as support. The 1.3414-1.3434 zone currently serves as lower-high resistance — for bulls to establish a credible recovery scenario for sterling, they must surpass that level. On Wednesday morning, there was a short-lived bounce in the EUR/USD following a report from the New York Times indicating that operatives from the Iranian Ministry of Intelligence had reached out to the CIA regarding possible terms to resolve the conflict. The euro rose slightly as the demand for the safe-haven dollar weakened. In the same hour, a news agency from Iran refuted the report. The pair relinquished their previous gains. The sequence clearly demonstrates the headline-driven, hour-by-hour dynamics of trading this pair at present — highlighting the necessity for conviction in structural positions rather than a reactive approach to entry. President Trump’s assertion regarding the U.S. Navy’s role in safeguarding shipping in the Middle East, along with Washington’s commitment to provide risk insurance to facilitate the uninterrupted flow of energy, contributed to a slight weakening of the dollar on Wednesday afternoon. These statements provide a sense of comfort in written form. The situation remains that the conflict has entered its fifth day without any significant signs of de-escalation. Israel conducted further strikes on Tehran on Wednesday, and QatarEnergy has announced force majeure on its LNG output, indicating that it does not foresee a near-term opportunity to resume production. The energy shock remains unaddressed despite insurance announcements. It necessitates the movement of physical vessels through Hormuz, which in turn demands a significant alteration in the military landscape.
The most significant macro development for EUR/USD is not a specific data point — it is the overall adjustment of Fed expectations that has occurred over the last five trading sessions. The current market reflects around 45 basis points of overall Fed easing anticipated in 2026, a decrease from the previous week’s over 70% likelihood of several cuts. The likelihood of a cut in June is currently at 37%. The likelihood of a cut in July, according to CME FedWatch, stands at 42.8%, indicating a near-even chance. Wednesday’s ISM Services PMI at 56.1 — surpassing the 53.5 consensus and marking its highest level since July 2022 — eliminated any lingering debate about the U.S. service economy weakening sufficiently to compel action from the Fed. The prices paid component in the ISM decreased by 3.6 points to 63, serving as the sole moderating indicator in the report. However, ISM Manufacturing prices increased by 11.5 points to reach 70.5 earlier this week — a divergence indicating to the Fed that goods inflation remains elevated while services prices are moderating. The division maintains the central bank in a state of observation and caution. The ongoing disruptions in Hormuz, extending week by week, continue to exert upward pressure on energy prices, consequently constraining the Federal Reserve’s flexibility even more.
Friday’s NFP report stands as the upcoming significant driver for EUR/USD. An impressive payrolls figure would hasten the adjustment of rate cut expectations, elevate the DXY, and probably drive EUR/USD beneath 1.1578 towards 1.1500. A weak print could lead to a temporary decline in the dollar, possibly enabling EUR/USD to approach the 1.1670-1.1686 resistance area. The ADP beat of 63,000 on Wednesday indicates that NFP may exceed expectations, implying that the potential downside for EUR/USD on Friday is greater than the upside potential. EUR/USD presents a selling opportunity at the current levels and on any rebound towards 1.1670-1.1686. The technical structure indicates a downward trend — characterized by lower highs and lower lows, with the descending trend line resistance remaining unbroken. The underlying conditions are negative — risks of stagflation in Europe, the ECB caught between inflation and growth challenges, and the USD bolstered by its status as an energy exporter alongside a hawkish repricing by the Fed. The geopolitical landscape appears negative — no signs of de-escalation, traffic in Hormuz remains halted, and QatarEnergy is under force majeure. The sole circumstance that could alter this stance is a swift and credible resolution of the Strait of Hormuz situation, leading energy prices to fall back below pre-war levels. This scenario does not appear in any existing data. As long as 1.1670 remains intact, any upward movement in EUR/USD presents a chance to sell.