Tensions in the Middle East continue to pull the strings for EURUSD. Last week, US President Donald Trump called off a planned strike on Iran, but this is hardly the end of the story. Peace talks have stalled, and the threat of renewed hostilities is still alarmingly high. What does this mean for the market? Energy prices stay elevated, and investors keep flocking to the dollar as a safe haven. For the eurozone, heavily dependent on imported fuel, this is a nightmare scenario, as it feeds stagflation risks and pushes the euro further down against the greenback.
The European Central Bank (ECB) is widely expected to hike interest rates in June, with up to two more moves possible by the end of the year. Yet, the single currency isn't getting the lift one might expect. Why? Because tightening only locks in the stagflationary outlook that's already burdening the region. The evidence is mounting: consumer prices are rising, industrial output shrank in the first quarter (Q1), and economic forecasts have been trimmed. Put simply, the fundamental tide is flowing against the euro.
The United States, meanwhile, is proving surprisingly tough. First‑quarter GDP grew 2.0% year‑on‑year, and inflation picked up only modestly. In April, the Consumer Price Index (CPI) hit 3.8%—the hottest reading since May 2023. The main culprit? A sharp 17.9% surge in energy prices, driven by ongoing shocks. These figures have all but dashed hopes for an early Fed pivot. So, the dollar holds its ground, powered by an interest rate advantage over the ECB that shows no sign of shrinking.
The ultimate recommendation is to sell the EURUSD pair at the current price, targeting 1.15000 within the next four weeks. To cap our downside if the market turns against us, place a Stop Loss order at 1.16700, just above the resistance level.
This content is for informational purposes only and is not intended to be investing advice.
