EUR/USD is currently trading at 1.1632, having reached an intraday low of 1.1582 — the lowest level since April 7 — and has managed to recover above the 1.1600 psychological level as the European afternoon progresses. The bounce appears to be driven by mechanical factors rather than strong conviction: softer US Treasury yields are alleviating the pressure, a source has indicated that an ECB June rate hike is “nearly sealed,” and the market, which has been heavily positioned on euro shorts, is taking some profit ahead of the April FOMC minutes release tonight. The Dollar Index is currently positioned between 99.36 and 99.39, maintaining proximity to the six-week peak of 99.45 reached earlier this week. That is the central tension in this pair right now — DXY is grinding higher due to the Fed being repriced hawkishly, while the euro struggles to fully capitalize on its own hawkish repricing because the dollar narrative is more dominant. Yesterday’s two-month low at 1.1596 was the level the bears aimed to breach, and the fact that it has remained intact into the European session is the sole factor currently distinguishing this market from a calculated shift toward 1.1500. The structural pivot stands at 1.1580, with the price having touched it for three consecutive sessions without achieving a definitive close beneath it. The technical case for the bears is clear: a Double Top breakdown below 1.1660 in mid-May confirmed the rejection of the spring range, and the movement has been a steady decline since. A clean daily close beneath 1.1580 opens the 1.1554 print — the 1.618 Fibonacci extension off the recent leg — followed by 1.1539 as the next red-extension target. Beyond that, the 1.1500 round figure serves as a significant horizontal floor where buyers have historically sought to mitigate declines. Below 1.1500, the medium-term structure indicates a movement toward the 1.13 to 1.12 zone, ultimately leading to 1.10, which has functioned as a long-standing resistance-turned-support since July 2023.
To the upside, the map is equally precise. 1.1628 to 1.1660 represents the immediate supply pocket — the previous Double Top neckline that has transitioned from support to resistance. Above that, 1.1684 signifies the 20-day EMA, while the 50-day SMA is positioned at 1.1649 and the 100-day SMA at 1.1701, forming a substantial dynamic resistance level. The swing high on May 13 at 1.1742 indicates the potential strength of the corrective bounce, while the 1.1800 level represents the wider supply zone that must withstand consistent selling pressure for a genuine reversal to occur. The momentum picture is clear and straightforward. Daily RSI is currently at 43, with no signs of bullish divergence appearing, remaining below the 50-line that distinguishes corrective bounces from authentic trend shifts. The MACD line remains in negative territory, accompanied by a slightly negative histogram — indicating a classic scenario where downside momentum persists, yet shows no signs of exhaustion just yet. On the 4-hour chart, the RSI remains around 45, indicating a position in negative territory. This suggests that sellers are actively pressing down on each rally, rather than buyers stepping in to absorb the dips. The 1-hour chart illustrates a consistent pattern — a downward trendline following the rejection around the 1.1720 level, with each pullback into the descending channel being met with selling pressure. Price action continues to be constrained beneath the 20-day EMA and the wider moving average landscape, indicating a classic characteristic of a market in a regulated downtrend rather than one seeking a reversal low. Volume profile indicates unsuccessful fair value gaps within the 1.164 to 1.166 range — suggesting distribution rather than accumulation. Rallies are facing selling pressure, while dips lack strong buying interest. That is the interpretation that holds significance.
The Dollar Index’s position at six-week highs is not coincidental. CME futures pricing currently indicates approximately 50% likelihood of a Fed rate increase by the end of the year, with the December meeting reflecting over 40% pricing for a 25-basis-point hike. As of February 27 — just before the US-Israeli airstrikes on Iran — the prevailing expectation was for a rate cut during the June meeting. That represents a 100-basis-point adjustment in short-rate expectations within a span of three months, and such a shift does not remain neutral in the foreign exchange market. 10-year US Treasury yields reached a new yearly peak at 4.91% as the market eliminated any expectations for cuts in 2026. The Fed is “slowly abandoning the easing bias,” as an increasing number of policymakers are explicitly considering the potential for hikes instead of cuts. Three policymakers advocated for the elimination of the easing-bias line from the April statement, while four dissents were recorded at the most recent meeting — marking the most significant internal division in years. The April CPI print exceeded expectations for both headline and core metrics, primarily influenced by shelter and energy costs, which solidified the shift towards a more hawkish stance. If the FOMC minutes tonight affirm the hawkish stance — and the prevailing view is that they will — DXY is likely to breach 99.45 decisively, while EUR/USD appears to lack substantial support until reaching 1.1500. The dovish surprise scenario remains the sole catalyst capable of triggering a significant short squeeze, and the current market lacks positioning for such an event.
The European narrative is indeed hawkish based on its own fundamentals, yet the market has already priced it in. In April, the Eurozone’s HICP increased to 3.0% year-over-year, up from 2.6% in March, primarily influenced by rising energy prices. Meanwhile, the Core HICP experienced a slight decline, moving from 2.3% to 2.2% year-over-year. That maintains inflation above the ECB’s 2% target for a second consecutive month and solidifies the rationale for action at the June 11 meeting. The pricing is substantial. BHH Market View indicates that there is an 86% likelihood of a 25-basis-point increase to 2.25% in June. One source indicates a figure of 83%, with 70 basis points of total tightening anticipated by year-end — nearly equivalent to three complete hikes. Reports indicates that the inflation outlook is shifting toward the “adverse scenario” described by the ECB. The central bank believes that “the situation in the Middle East and oil prices will need to change markedly” to prevent a move in June. The challenge for the euro bull scenario is straightforward: when an 86% probability increase is completely factored in, the additional benefit from a confirmed increase is limited, whereas the potential downside from a dovish surprise is significantly greater. The pair is expected to rally based on information that has already been reflected in the market. The ECB cannot “out-hawk” market pricing, indicating that EUR/USD strength must derive from US weakness instead of European strength — and currently, the US tape is not aligning with this expectation. The ongoing conflict in Iran is impacting Europe unevenly via the energy sector, which serves as the overarching factor hindering any substantial recovery of the euro. Brent crude has retreated to below $107 per barrel after reaching 11-month highs earlier this week.
Meanwhile, the Strait of Hormuz continues to be effectively closed, leading supertankers to operate with increased risk premiums. The cumulative damage since the war began is significant: WTI up 60%, Brent up 50%, jet fuel up 58%, heating oil up 55%, European natural gas up 54%, diesel and gasoline up 52% each. Europe relies on importing energy. When oil and gas prices surge, it adversely affects the Eurozone trade balance, increases imported inflation, and compels the ECB to navigate the challenging scenario of raising rates amid slowing growth. That is the “low-growth, high-inflation environment” that BHH identified as a scenario where rate hikes do not necessarily support the euro — they mitigate downside risks rather than promote upside potential. The euro is currently facing pressure from multiple fronts: stagflation concerns domestically, a strong dollar internationally, and a lack of clear catalysts to shift either dynamic. A ceasefire and reopening of the Strait would exert downward pressure on the dollar due to declining oil prices and renewed expectations for rate cuts, which is the scenario that bullish investors require. Headlines regarding the Iran deal would swiftly reduce the dollar premium. However, the IRGC’s assertion that future strikes would “extend the regional war beyond the region” coupled with Trump’s ongoing statements of “we may have to give them another big hit” with a timeline of “Friday, Saturday, Sunday, something” indicates that the standoff is unlikely to conclude soon. As noted by CSIS’s Will Todman, both parties perceive that time provides them with an advantage, which sustains the energy premium and places the euro under pressure.