EUR/USD is trading near 1.1425 on Thursday, remaining unchanged for the session and hovering close to its lowest level in a year, as the market anticipates two significant events occurring simultaneously: the ECB’s Monetary Policy Meeting Accounts and U.S. weekly jobless claims. The pair settled around 1.1450 earlier as demand for the dollar cooled, then drifted back toward 1.1420 after the Federal Reserve’s June minutes revealed a committee divided on whether the next move is a hike or a cut. The euro is not weak so much as constrained, fluctuating within the lower bounds of the range it has maintained throughout the year, with the 1.1400 level positioned directly below it and the bulls unable to regain 1.15. The macro backdrop is characterised by the prevailing force influencing all assets this week: the escalation between the U.S. and Iran. American forces conducted a second consecutive night of strikes, while Iran responded by targeting approximately 85 U.S. installations in Bahrain and Kuwait. In a significant development, Trump announced the termination of the memorandum of understanding with Iran. Brent crude surged toward $80 and WTI approached $75, and this oil spike is exerting a distinct impact on this currency pair that is not observed with others: it adversely affects the euro more than the dollar. The eurozone relies on energy imports, whereas the U.S. is self-sufficient in energy production. Every increase in crude prices represents a net negative for the single currency, despite the theoretical boost it may provide to ECB rate-hike expectations.
In summary, the EUR/USD pair is influenced by a dual hawkish pivot that strengthens both currencies, while the oil shock serves as a decisive factor, ultimately favouring the dollar over the euro. The ECB raised rates in June for the first time since 2023, while the Fed is considering additional tightening measures. Consequently, both currencies benefit from rate support, resulting in the pair moving sideways rather than exhibiting a clear trend. However, the energy shock driven by Iran presents an asymmetrically negative outlook for the energy-importing eurozone. Concurrently, an unexpected decline in eurozone inflation is undermining the euro’s rate-support foundation, while the Federal Reserve’s position remains stable. The outcome is a euro anchored at the 1.1400 Fibonacci support level, accompanied by a bearish technical framework indicating a downward trajectory. The 1.1473 line represents the threshold that would negate the bearish interpretation. Everything below depends on which side of that bracket the pair breaks. The defining feature of EUR/USD in 2026 is that both central banks pivoted hawkish at nearly the same moment, and that symmetry is what has jammed the pair into a range rather than letting it trend. The ECB raised its deposit rate to 2.25% on June 11, marking its first increase since 2023. This move coincided with the Fed, under Chair Kevin Warsh, adopting a hawkish stance and indicating potential rate hikes while maintaining its range at 3.50% to 3.75%. When both sides of a currency pair strengthen simultaneously, the rate differential that typically influences direction remains largely unchanged, resulting in a stagnation of the pair. As one strategist noted, the ECB shifted towards tightening concurrently with the Fed adopting a hawkish stance, resulting in both entities maintaining a firm position, leaving the pair confined within a mid-range rather than experiencing a breakout.
That symmetry elucidates the counterintuitive price movements observed over the past month. The ECB implemented a rate increase, a decision anticipated to bolster the euro; however, the EUR/USD pair declined against the dollar, retreating to approximately 1.143 from its January peak of 1.2019. The reason lies in the counterpart of the pair: the dollar strengthened significantly as the Fed indicated a potential rate hike, with the dollar index surpassing 100 in June amid rising U.S. inflation rates. The euro’s narrative shifted to a more hawkish stance; however, the dollar’s transition to a hawkish position occurred more swiftly and with greater intensity. Consequently, the pair moved toward the lower end of its range, despite a euro-positive event. For the forecast, the dual hawkish pivot indicates that the pair’s direction is no longer determined by which central bank is easing, as neither is currently doing so. It is determined by the second-order factors that disrupt the symmetry: relative growth, the energy shock, and the marginal adjustment in each central bank’s hiking probabilities. When both anchors are firm, EUR/USD trades on the tie-breakers, and currently those tie-breakers exhibit a bearish inclination for the euro. The 1.13 to 1.21 range that has contained the pair all year is the direct product of this balanced-hawkish setup. Until one side blinks—whether through decisively softer eurozone inflation that undermines ECB hikes or a Fed pivot to cuts—the pair remains confined within this range. The July 23 ECB decision and the July 29 Fed meeting represent pivotal events that may resolve the current impasse. Until then, EUR/USD remains within a range, currently positioned unfavourably for euro bulls.
The sole element disrupting the dual-hawkish equilibrium in favour of the dollar is oil, with the underlying mechanism being structural rather than cyclical. The escalation in Iran has driven Brent prices toward $80 and WTI to approximately $75, reflecting an increase of around 10% over the week. This energy shock poses a significantly greater threat to the eurozone compared to the United States. The euro area relies heavily on energy imports, meaning that an increase in oil prices elevates import expenses, constricts industrial profit margins, and diminishes household purchasing power within a region that is currently expanding at a mere 0.8%. The U.S. possesses significant domestic oil production, which mitigates the impact of external shocks and even provides advantages to certain sectors of its economy. Identical oil prices yield contrasting impacts on the two currencies. This is why the war headlines that elevate the rate-hike probabilities for both currencies ultimately result in a bearish outlook for the euro. Increased oil prices hinder central bank easing across the board; however, for the eurozone, this situation concurrently jeopardises growth prospects. A currency cannot strengthen solely based on expectations of interest rate hikes when those expectations are fuelled by a shock that adversely affects the fundamental economy. Higher inflation does not inherently signal a bullish outlook for the euro; the currency pair will only gain if market perceptions categorise the energy shock as manageable rather than indicative of a recession. With eurozone growth already adjusted to 0.8% and an oil spike compounding the situation, the shock appears to lean more towards recessionary than manageable, which limits the euro’s potential even as expectations for ECB rate hikes strengthen.
The dollar occupies a favourable position in this trade, benefiting from a dual advantage. It benefits from the safe-haven demand during periods of risk aversion, and it also profits from its status as the currency of an energy-producing economy that is shielded from the impacts of oil price fluctuations. Elevated Treasury yields and a strong demand for safe-haven assets provide robust support for the dollar, particularly at a time when the euro faces significant vulnerabilities. In the forecast, the oil price emerges as the primary indicator for EUR/USD: persistent Brent prices exceeding $80, coupled with congestion in the Strait of Hormuz, maintains asymmetric pressure on the euro and directs the pair towards 1.1323. A de-escalation that rolls crude back under $73 eliminates the tie-breaker, reinstates the dual-hawkish symmetry, and allows the pair to drift back toward the midpoint of its range. Traders monitoring EUR/USD ought to pay attention to Brent, as the energy market now provides the clearest indication for the euro’s forthcoming direction.