Over the past week, the EURUSD pair has struggled, with the dollar flexing its muscles in the wake of the Federal Reserve's (Fed) latest policy meeting. Although the American central bank left interest rates parked at 3.75%, the updated dot plot revealed that some officials are keeping the door wide open to a hike before the year is out. This gave the market the green light it needed, sparking fresh demand for the greenback as traders began factoring in a longer stay for elevated US borrowing costs.
On the other side of the Atlantic, the story is just as tricky. The European Central Bank (ECB) has recently pulled the trigger on monetary tightening in a preemptive bid to combat inflationary pressures, fueled by surging energy costs and the fallout from the Middle East conflict. Consumer prices in the eurozone are still overshooting the target, and the regulator's own projections show that they are set to stick around through 2026 and into early 2027. But this is not exactly a blessing for the single currency. Hiking rates amid sluggish growth could weigh heavily on businesses. The bloc is barely crawling forward, and its energy dependence makes it far more vulnerable than the United States.
And then there is the Middle East factor. If ongoing negotiations lead to a lasting peace deal, oil prices could take a dive, and inflation expectations in the region could ease—a short-term positive for the euro, as it dials down the threat of another energy shock. However, the dollar is still sitting pretty high, armed with its yield advantage and classic safe-haven credentials, especially with geopolitical uncertainty still lurking in the wings.
All things considered, the fundamental backdrop for EURUSD points to more pain ahead. The next downside target to keep an eye on is the 1.14200 support.
The final recommendation:
— Sell the EURUSD pair at the current price, targeting 1.14200 within one month.
— To limit losses if the market plays against us, place a Stop Loss order just above the resistance level, i.e., at 1.15000.
This content is for informational purposes only and is not intended to be investing advice.
