The single currency has relinquished its hold on the 1.1700 level and is currently exhibiting a cautious demeanor as it approaches a pivotal 72-hour period for central banks in the second quarter. The EUR/USD exchange rate was last observed at 1.1695 during the European session, marking a new two-week low after retreating from an intraday high of 1.1754 — just below the 1.1769 horizontal resistance level — and giving up gains that buyers had managed to recover from the 1.1410 swing low established earlier in April. The pair has fallen below the 1.1700 to 1.1710 pivot zone and the upward trendline that characterized the bullish recovery since late March. Consequently, the structural analysis on the daily and four-hour charts has transitioned from a cautiously bullish stance to a more balanced perspective. The catalyst stack presents a challenging environment: the U.S. Dollar Index stands at 98.67 with intraday peaks approaching 98.74, the U.S. 10-year Treasury yield is currently at 4.374%, marking a three-week high, the Strait of Hormuz continues to be closed as the Iran conflict enters its second month, and both the Federal Reserve and the European Central Bank are set to announce policy decisions within a 24-hour timeframe. For traders managing EUR/USD risk into Wednesday and Thursday, the focus shifts from determining if the bullish bias from late April remains intact to assessing whether the 1.1650 support cluster can withstand the dollar demand before the central-bank dynamics dictate the next directional shift.
The dollar’s resurgence in strength is not merely a change in sentiment; it is a reflection of real rates at play. The U.S. CPI stands at 3.3% year-on-year for March, largely influenced by energy passthrough resulting from the Hormuz shutdown, whereas the underlying inflation has slightly decreased to 2.6%. The combination of a persistent headline and a softening core provides the Federal Reserve with justification to maintain the policy rate within the range of 3.50% to 3.75% on Wednesday, as indicated by the CME FedWatch tool, which reflects a 99.5% likelihood of no change in the rate. The market has shifted its stance on aggressive easing for 2026; rather, the curve is beginning to consider the potential for additional hikes should the Hormuz inflation passthrough persist. The current repricing stands as the most significant factor hindering EUR/USD bulls at this moment. The structural setup is reflected in the U.S. yield complex. The 10-year benchmark has risen to 4.374%, while the 2-year and 5-year yields are also increasing in tandem. Real yields are expanding as nominal yields are increasing at a pace that outstrips inflation expectations. The arithmetic reinforces the dollar via both the carry channel and the safe-haven channel at the same time, a rare combination that provides DXY with momentum from various angles. WTI crude is currently at $100.31, reflecting a session gain of 4.09%, while Brent stands at $111.76, up 3.26%. This data indicates that the Hormuz disruption is a persistent inflation driver rather than a diminishing impact. The negotiations between the U.S. and Iran continue to be at a standstill following Trump’s rejection of Tehran’s proposal to reopen the Strait in return for the removal of the U.S. naval blockade. Additionally, Foreign Ministry spokesperson Esmaeil Baqaei has stated that there are no meetings planned at this time between Washington and Tehran. The ongoing stalemate ensures that the demand for the dollar as a safe haven remains strong in the near term.
This week’s decision from the European Central Bank is pivotal for the EUR/USD trajectory, with a consistent cautious outlook from institutions. The ECB is anticipated to maintain the deposit rate at 2.00% during the April 29-30 meeting, as policymakers take a cautious approach, evaluating the effects of increasing energy prices on inflation within the eurozone. Headline eurozone inflation is currently in the 2.0% to 2.2% range and is expected to rise slightly in the upcoming months due to energy passthrough, although core inflation pressures have not yet significantly expanded across the basket. This provides Lagarde and the council with the political flexibility to postpone action without necessitating a shift towards a more aggressive stance. The critical consideration is whether the ECB will lag further behind the Fed in terms of policy normalization, or if it will regard the energy-induced inflation surge as a temporary consequence of the Hormuz conflict. Currently, markets are anticipating two rate hikes from the ECB in 2026. However, the threshold for implementing these hikes is considerable, as the eurozone is experiencing a modest growth rate of 1.1% to 1.3% annually. Any indication of demand destruction due to rising energy costs will further support the argument for maintaining a patient approach rather than taking immediate action. On Thursday, the release of Eurozone inflation and Q1 GDP figures will occur just before the rate decision, with the data poised to influence the atmosphere of Lagarde’s press conference. A concerning inflation report coupled with a decline in GDP would place the ECB in a challenging situation — stagflation-lite — which historically leads to a depreciation of the euro against the dollar via the rate-differential mechanism.
The Federal Reserve is expected to maintain rates between 3.50% and 3.75% on Wednesday; however, the context surrounding this decision is crucial for EUR/USD dynamics. Powell is anticipated to highlight a cautious stance, balancing the increasing inflation driven by energy prices with the growth and employment threats posed by the repercussions of the conflict. The trade-off presents a genuine challenge: maintaining elevated rates for an extended period safeguards against the Hormuz inflation passthrough, yet poses the risk of tightening amid a slowdown; conversely, easing too soon alleviates growth pressures but undermines credibility regarding the inflation mandate. The press conference will be analyzed sentence by sentence for any indication of the Fed’s direction, and the dollar’s response will depend on whether Powell appears more worried about inflation or more focused on growth. The prevailing expectation leans towards a hawkish hold, which is reflected in the current pricing of DXY at 98.67. The policy decision is further complicated by the institutional dynamics surrounding Fed leadership. Powell’s tenure as Chair concludes on May 15, yet he will continue to serve on the Board of Governors until 2028. Senator Thom Tillis remarked on Monday evening that there exists a logical justification for Powell to continue serving on the board during the inspector-general review of the Fed construction project and the DOJ’s appeal regarding the federal-court decision that opposed the subpoenas of the investigation. Kevin Warsh is advancing in the confirmation process as a possible successor, and the political dynamics surrounding the transition are now influencing the dollar’s term premium. Any indication on Wednesday regarding whether the transition is smooth or contentious will directly impact 10-year yields and subsequently influence EUR/USD through the rate-differential mechanism. A smooth transition supports the dollar; however, a contentious one brings volatility that has historically favored the euro in relative terms.
The Bank of England is positioned within this week’s group of central banks, scheduled to make its decision on May 1. In March, the UK Consumer Price Index recorded a year-on-year increase of 3.3%, while the core inflation rate rose to 3.1% — both figures meeting or exceeding the target. Unemployment has risen to 4.9%, while the Bank of England is navigating the challenges posed by energy-driven inflation against signs of a softening labor market, with the policy rate anticipated to remain at 3.75%. The growth in the UK continues to be relatively strong compared to the eurozone; however, the balance between inflation and employment presents more challenges. Any unexpected hawkish stance from Threadneedle Street could lead to an increase in GBP/USD and a decrease in EUR/GBP, creating additional pressure on the EUR/USD exchange rate. The GBP/USD is currently positioned around 1.3508, resting slightly above its ascending trendline, with significant support levels identified at 1.3486 and 1.3435. Any fluctuations from the BoE outcome are likely to influence euro positioning as well. For traders operating with a directional perspective on EUR/USD, the cross-vol layer from the BoE introduces noise that ought to be incorporated into the position-sizing rather than overlooked. The BOJ made a decision earlier Tuesday with a 6-3 split to maintain the rate at 0.75%. However, three dissenting members advocated for an increase to 1.00%, pointing to supply-side risks driven by Hormuz. The BOJ has significantly adjusted its FY2026 core inflation forecast, raising it to 2.8% from the previous 1.9%, while also lowering the growth projection to 0.5% from 1.0%. The recent hawkish dissent from the world’s most patient central bank serves as a clear indication that energy-driven inflation is compelling all major policymakers to take action. Consequently, the tightening global conditions that ensue are likely to provide marginal support for the dollar. The euro has appreciated by 0.06% against the dollar today according to the FXStreet currency heat map, while it has depreciated by 0.30% against the yen — an asymmetric movement that underscores the significant macro signal of the Japanese hawkish stance.
The technical structure on EUR/USD has transitioned from a cautiously bullish stance to a genuinely two-sided outlook in the last 48 hours. On the four-hour timeframe, the pair rebounded from the 1.1410 low to reach a high of 1.1850, before retreating to test the 200-period SMA at 1.1680. The price has maintained its position above the near-term rising trendline and the 200-period SMA, which has preserved the bullish sentiment. However, the rejection at 1.1850 and the inability to surpass 1.1769 have diminished the overall structure. The 100-period and 200-period moving averages were successfully reclaimed during the rally, while the price was showing rejection at the 50-period MA earlier in the session. This sets the stage for a potential retest of the 100-period MA at 1.1647. The Relative Strength Index on the four-hour timeframe has decreased to approximately 54, indicating that there is still room before overbought conditions are reached. However, the decelerating momentum profile, along with the lower-high pattern observed on the daily chart, serves as a cautionary signal that the bullish phase is diminishing rather than gaining strength. The MACD line shows a slight positive position and is above its signal, indicating a structurally constructive scenario, though it lacks impulsiveness. This type of reading typically suggests a potential consolidation or a structural breakdown, rather than an extension of a breakout. The hourly chart provides additional detail. EUR/USD reached 1.1754 before pulling back, with the H1 200-period moving average serving as dynamic support that has recently been rejected. A bullish engulfing candle or long-wick rejection near the 1.1716 to 1.1700 area would indicate that buyers are prepared to support the intraday trend; without that confirmation, the structure leans toward a stop-run lower. The H1 RSI has transitioned from an overbought condition to a more neutral stance, allowing for a potential decline toward 50 prior to any recovery efforts.