EURUSD sell-off targets 1.1300

The outcome of the July 29 Federal Reserve (Fed) meeting and new Chairman Kevin Warsh’s unwavering hawkish tone created a tough fundamental environment for EURUSD. Although the regulator left interest rates unchanged in the 3.50%–3.75% range, a visible split among policymakers (three confident votes for a hike) and the absence of any softening guidance cemented the dollar’s dominant position.

Yesterday’s events put the pair, which had traded within a narrow channel between 1.1370 and 1.1470, under significant pressure. Let’s break down the situation step by step.

Key burdens on EURUSD: 

Monetary divergence. Under Warsh’s leadership, the Fed has reaffirmed its commitment to curbing stubborn US inflation. The European Central Bank (ECB), by contrast, has adopted a more dovish stance, keeping its borrowing costs well below those in America. As a result, the widening rate gap between the two regulators tends to draw capital toward the dollar.

Geopolitical tensions and energy shocks. An escalating Middle East conflict keeps triggering spikes in crude prices. This is a one-two punch for oil-dependent Europe: it slows the region’s GDP—this year’s forecast stands at a modest 0.8%—and drives up expenses. Under these circumstances, the US dollar looks like a total winner thanks to its safe-haven status.

Kevin Warsh factor. The new Fed Chair has refrained from providing clear forward guidance, adding to overall uncertainty. In this environment, investors are bound to price in a risk premium, which has historically favored the greenback.

Outlook for EURUSD:

Baseline scenario (bearish). According to this view, the pair is expected to drop to 1.1320–1.1300 in the coming weeks. The Fed will keep the market in suspense, while US GDP and PCE data will only confirm the resilience of the American economy. These conditions are likely to boost the dollar and push the euro to multi-year lows.

Alternative scenario (bullish). According to this outlook, EURUSD could return to the 1.1450–1.1480 range. This would require de-escalation in the Middle East, a sharp fall in crude prices, and disappointing US macroeconomic releases, which might force Kevin Warsh to soften his hawkish rhetoric.

In general, the pair remains in a downward trend. The Fed’s internal split and its tough tone create favorable conditions for holding short euro positions, with a target near 1.1300.

The overall recommendation is to sell EURUSD. Profits should be taken at 1.1300. Stop Loss could be set at 1.1550.

The volume of the open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.