The EUR/USD pair is currently at a critical juncture as Monday’s session progresses, last seen trading in the range of 1.1700-1.1710 following a brief ascent during the Asian session into the mid-1.1740s, which was quickly reversed. The decline observed on Friday from a one-and-a-half-week peak close to 1.1847 has continued into the new week, with the bullish gap that initiated the European session now largely filled. The pair faces a challenging environment as the U.S. Dollar Index is steadily rising around 98.32 due to safe-haven flows linked to the situation in the Strait of Hormuz. Meanwhile, Brent crude remains elevated above $110, and the bond market has significantly adjusted its expectations for Fed rate cuts downward. Each of those factors is detrimental to the euro. The scenario presents a classic confrontation between two opposing entities. On one side, the technical structure on the 4-hour chart continues to indicate a favorable outlook — price remains above the 200-period Simple Moving Average, the Relative Strength Index hovers around 53 (showing mild positivity without being overextended), and the MACD remains slightly in positive territory. Conversely, the macro landscape is indicating a “stronger dollar” across all significant channels: increasing real yields, a hawkish stance from the Fed, escalating oil prices that impact Europe as a net energy importer, and ongoing geopolitical risks that funnel haven flows into Treasuries and the dollar. The outcome is a pair that aims to ascend technically but continues to face setbacks from macroeconomic conditions.
An analysis of the current position of EUR/USD, the factors influencing its price movement, and potential developments in the upcoming weeks. The situation in the Strait of Hormuz has provided the U.S. Dollar with a strategic edge that is likely to persist for some time. President Trump’s “Project Freedom” was launched on Monday — a U.S. initiative aimed at assisting commercial vessels that are stranded in the strait, while refraining from providing formal naval escorts. According to Al Jazeera, Iran’s IRGC reported that two missiles hit a U.S. warship close to Jask Island. The U.S. Central Command has categorically denied the strike and has verified that two U.S.-flagged merchant vessels have successfully navigated through the strait. The United Arab Emirates confirmed that an Adnoc-affiliated tanker was indeed the vessel struck by Iranian drones. Iran’s foreign ministry cautioned that any U.S. military “interference” in the strait would be regarded as a breach of the ceasefire and responded to with “full strength.” The market reaction was favorable for the dollar overall. The DXY reached a high of 98.80 before retreating to 98.32, as bearish trendline resistance continues to limit upward movement, although the overall demand remains strong. Brent crude increased to $111.56 (+3.13%), while WTI reached $102.52 — importantly, these elevated oil prices support the U.S. dollar, contrastingly impacting the euro negatively. The United States has established itself as a significant energy exporter; consequently, as crude prices increase, the demand for dollars from nations that import energy escalates. Europe reflects a structural net importer of energy, where elevated oil prices diminish trade balances, tighten corporate margins, and exert pressure on household consumption.
The underlying asymmetry is the primary factor hindering EUR/USD from further extending its rally, even though the technical setup suggests a positive outlook. Vishal Chaturvedi’s observation at FXStreet that “escalating Middle East tensions lift the U.S. Dollar” serves as the central theme for all G10 currency pairs at this moment, with the euro positioned unfavorably in this context. Christian Borjon Valencia noted that the same trend is impacting GBP/USD — sterling has fallen to two-day lows around 1.3520, with cable stabilizing in the low 1.3500s for comparable reasons. The 4-hour technical structure on EUR/USD presents a classic “constructive but vulnerable” scenario. The resistance ladder is ascending: 1.1750 represents the immediate challenge — this aligns with the 23.6% Fibonacci retracement of the March-April upswing, and a sustained acceptance above this threshold will serve as the pivotal condition for the bulls to assert genuine dominance. The next target is 1.1790. 1.1847 signifies the latest peak in the cycle. Traders are currently eyeing new extension targets within the 1.1900-1.1950 range. The support ladder is trending downward, with 1.1700 serving as the immediate psychological pivot point. 1.1692 represents the 38.2% Fibonacci retracement — it is the initial significant support level that must be maintained to preserve the overall structure. Below that, the essential confluence zone establishes at 1.1648 (the 200-period SMA on the 4-hour) in addition to 1.1644 (the 50.0% Fibonacci retracement). Failing to maintain that combined zone on a daily close will result in a definitive shift to a bearish outlook. Should the price drop below 1.1644, the subsequent level to watch is the 61.8% Fibonacci retracement at 1.1596, followed by 1.1528, and then 1.1441.
A distinct analysis on the same pair from Arslan Ali at FXEmpire presents a similar setup with slightly varied levels. He identifies 1.1680 as the critical support level where the ascending trendline intersects with the 200 EMA — similar concept, marginally varied figure. His upside trade proposition: long above 1.1680 with a target set at 1.1750 and a stop placed below 1.1650. The focus is on the convergence within the range of 1.1644-1.1680, which serves as the critical structural floor. The momentum reading presents a mixed picture, leaning towards a weaker outlook. The RSI approaching 45 on Ali’s analysis indicates that bullish momentum is weakening. The 50 EMA has stabilized, indicating a phase of consolidation instead of a continuation. The Doji indecision pattern that emerged around the 1.1700-1.1710 area indicates that the market is truly uncertain regarding its next directional shift. Acceptance above 1.1750 indicates a shift to bullish momentum; a drop below 1.1648-1.1680 signals a bearish reversal. The current position of the pair indicates a mid-range status, lacking a definitive advantage. GBP/USD is closely aligned with EUR/USD, both responding to the prevailing dollar-strength environment, though sterling is influenced by additional uncertainties from the Bank of England. Cable was last observed around 1.3550 following a rejection at the 1.3650 resistance, which established a distinct lower-high on the 2-hour chart. The price has fallen beneath the 50 EMA and is currently evaluating trendline support at 1.3500, while the 200 EMA remains positioned below. The rejection wick near the highs indicates supply pressure, and the RSI declining from 60 suggests that bulls are losing momentum.
The Bank of England maintained its rates in April; however, one member of the Monetary Policy Committee advocated for an increase — a hawkish dissent reflecting the current situation at the Federal Reserve. The pound exhibits a heightened sensitivity to oil-driven inflation via the energy import channel, indicating that the Hormuz dynamic exerting pressure on the euro is intensified for sterling. Trade idea on cable: initiate a short position below 1.3550, targeting 1.3450, with a stop-loss set above 1.3620. Should the price fall below 1.3500, the subsequent level to monitor is 1.3448. For those observing the EUR complex, the movements in GBP/USD serve as a valuable sentiment indicator. If cable breaches 1.3500 decisively, EUR/USD will likely give up its 1.1700 support level in response. The Federal Reserve is the key factor influencing EUR/USD direction in the upcoming 60-90 days, period. The Federal Reserve maintained the current interest rates during the last meeting; however, four members of the FOMC expressed differing opinions — marking the highest level of dissent in years. This indicates a division within the committee regarding the approach to managing inflationary pressures stemming from oil prices and tariffs. CME Group data indicates a mere 5.1% likelihood of a rate reduction to 3.25-3.50% in June. 94.9% of market participants anticipate that rates will remain unchanged at 3.50-3.75%. Market participants are currently factoring in the potential for rate increases by 2027 as a less likely outcome.
The Fed’s current position is one of maintaining higher rates for an extended period, which is favorable for the dollar in all respects. The U.S. 10-year Treasury yield increased to 4.41% on Monday, up from 4.38% at the close on Friday. The two-year is positioned above 3.94%. As real yields increase, the attractiveness of holding non-dollar currencies diminishes, especially for the euro, given the widespread anticipation of a rate hike by the European Central Bank in June. The expectation of an ECB hike is what is preventing EUR/USD from experiencing a significant decline, even in the face of a strong dollar. Markets have decisively factored in the ECB taking a more robust approach to the energy shock compared to their actions in 2022. Commerzbank’s Thu Lan Nguyen has highlighted this specific dynamic — the euro’s resilience near pre-war levels, despite the ongoing blockage of Hormuz and Brent prices exceeding $100, is attributed to a blend of dollar weakness across G10 currencies and euro strength against that same group. However, Nguyen expresses clear skepticism regarding the market’s anticipation of three ECB rate hikes by the end of the year. Her base case suggests that there will likely be only one hike unless Hormuz remains closed until the end of the year, as the economic strain from the energy shock combined with the eurozone’s debt burden renders aggressive tightening both politically and economically unfeasible. The essential insight for EUR/USD traders: those anticipating higher EUR/USD levels should concentrate mainly on the weakness of the dollar, rather than the strength of the euro. The recent 25-basis-point increase in the ECB’s carry differential is essentially negligible — any upward movement must originate from the dollar side of the equation, and currently, the dollar is not aligning with this expectation.