EUR/USD is currently positioned around 1.1500 on Tuesday, maintaining the gains from Monday’s recovery after breaking a four-day decline that saw the pair drop from above 1.16 to a session low of 1.1410 — a fluctuation exceeding 5% within just a few days. The recovery appears to be progressing positively at first glance. It is not. What occurred on Monday was a relief rally influenced by technical factors in a market that had reached a state of deep overselling following one of the most significant short-term declines EUR/USD has experienced in years. Referring to it as anything other than a corrective bounce is overly optimistic, and the price movement since the bounce commenced clearly indicates the market’s perspective: EUR/USD reached a high of 1.1502 during Monday’s session and has faced challenges in significantly exceeding 1.1510 on Tuesday. The pair approached its 100-hour moving average, located around 1.1506, and encountered selling pressure at that level. That’s not just a coincidence. The market is experiencing a downtrend, with every technical reference point presenting a chance for shorting. The 38.2% Fibonacci retracement of the complete decline observed last week is positioned at 1.1508. The 100-hour moving average stands at around 1.1530. The midpoint of the decline stands at approximately 1.1538, aligning with a significant swing zone that ranges from 1.1538 to 1.1554. All of these levels remain intact. A daily close above 1.1630, which is where the 20-day Exponential Moving Average is located, is necessary before any solid case can be presented that the downside pressure is truly diminishing. The current trading level of EUR/USD is over 120 pips below that figure. To close that gap, a catalyst is necessary, which the market presently lacks.
On the downside, the structure remains equally exact. The swing lows from November 2025 at 1.1491 and 1.1468 — which EUR/USD decisively broke last Friday before briefly reaching 1.1410 on Monday — are currently serving as the foundation for the recovery. Last week’s drop below those levels was a notable technical occurrence; the following recovery provides buyers with a temporary advantage, but those levels must be maintained during any pullback or the pair will likely return to 1.1413 and then 1.1360. A breach of 1.1360 sets 1.1300 as the subsequent target for a downward movement. The RSI remaining in the mid-30s after bouncing back from oversold levels does not indicate a bullish trend — it suggests stabilization rather than a reversal. The momentum continues to show weakness. The short-term outlook is clearly negative as long as the price remains below the 20-day EMA at 1.1630. The US Dollar Index, which monitors the greenback against a selection of six major currencies, experienced a slight decline near 99.70 on Tuesday — retreating from the heightened levels it attained amid the peak of Iran war risk pricing. The slight weakness in the USD is the main factor contributing to EUR/USD’s ongoing stability above 1.1500. The pair is not experiencing an uplift from EUR strength; rather, it is being bolstered by a short-term decrease in the demand for safe-haven dollars.
This differentiation is essential. The USD experienced a sell-off at the start of Monday as oil prices pulled back from their peak above $105 per barrel on Sunday, while equity markets began to recover, leading to a diminished need for safe-haven assets. However, the fundamental demand for the dollar remains unchanged. The United States has achieved energy independence. As oil prices climb to $95, $100, and $105 — a trend observed since the onset of the Iran conflict on February 28 — the dollar stands to gain directly, given that crude is priced in USD and energy export revenues are processed through dollar-denominated channels. All G10 economies, with the exception of Norway and Canada, are adversely affected by increases in energy prices. The euro zone imports more energy than it exports. The equation remains straightforward, and it continues to place EUR/USD at a structural disadvantage as long as Brent remains above $100. The DXY experienced a decline of nearly 10% throughout 2025, marking the conclusion of what Morgan Stanley referred to as “a 15-year bull cycle” amidst the tariff turmoil that ensued after Liberation Day in April. The decline of the dollar served as the basis for EUR/USD’s upward movement to reach multi-year peaks. The foundation showed signs of distress on February 28. The dollar has been on a recovery path, with markets currently reflecting a 34% likelihood of no rate cuts in 2026 — a significant increase from December, when the chances of a February rate cut were at 58% — and the DXY is now close to its highest point in 10 months. The regime remains the same. The straightforward upward trend of the EUR in 2025 has concluded, and the USD is entering a new phase of dominance.
The Federal Reserve’s two-day policy meeting began on Tuesday, and the anticipated outcome for Wednesday is already reflected in the market: rates are expected to remain steady in the 3.50%–3.75% range, with the CME FedWatch tool indicating a high probability of this hold. The rate decision is not significant for EUR/USD positioning. The tone that Jerome Powell adopts during his 2:30 p.m. conference on Wednesday, along with the updated Summary of Economic Projections — the dot plot — is certainly significant. The market is focused on a single question stemming from Wednesday’s meeting: for how long will the Fed remain inactive? If Powell indicates that the inflationary effects of the Iran war, driven by high oil prices — with Brent crude exceeding $100 and diesel prices nationwide at $5.04 per gallon, a 38% increase in just a month — have significantly influenced the Fed’s decision-making towards an extended pause, the dollar could strengthen further, pushing EUR/USD back below 1.1468 towards 1.1360. If Powell successfully navigates the situation by recognizing inflation risks while allowing for potential cuts later in the year if the conflict is resolved, the dollar may weaken slightly, giving EUR/USD a chance to test the 50% retracement at 1.1538 and subsequently the 100-hour MA at 1.1530.
Thornburg Investment Management portfolio manager Ali Hassan has outlined the potential scenarios: two to three cuts could occur in 2026 if the Iran conflict is resolved within weeks; however, if it continues for two to three months, no cuts are anticipated. With Brent crude at $101.43 Tuesday morning and the Strait of Hormuz effectively shut down — ship crossings averaging just two per day against peacetime levels of 100+ — the scenario of resolution in weeks necessitates a geopolitical breakthrough that is not currently backed by any developments on the ground. The deferred futures market shows consistency: WTI January 2027 contracts increased from $68.55 to over $75 within just one week. The oil market reflects expectations of a drawn-out conflict, and the Federal Reserve is adjusting its stance in response. The likelihood of no cuts in 2026 stands at 34%, marking the highest level observed in over a year, and it appears to be on an upward trajectory, barring the reopening of Hormuz. The trajectory of the Fed rate is the primary medium-term influence for EUR/USD, following the dynamics of energy prices. A central bank that maintains a hawkish stance while another adopts a dovish approach creates a favorable environment for the USD and a negative impact on the EUR, a divergence that has typically resulted in a movement of 3–5 big figures over a six-month timeframe.