EUR/USD fell to 1.1549 on Monday, with the US dollar extending gains from the previous session amid heightened demand for safe-haven assets as the Middle East conflict escalates.
The confrontation between the US and Israel against Iran has entered its fourth week with no signs of de-escalation. Donald Trump has threatened to strike Iran’s energy infrastructure if the Strait of Hormuz is not reopened. Tehran has announced it is prepared to attack key US and Israeli targets in the region in response.
Elevated oil prices continue to fuel inflationary concerns and reduce the likelihood of an imminent Federal Reserve rate cut. Some market participants are even beginning to consider the possibility of a rate hike later this year.
Last week, the Fed held rates steady as expected. Jerome Powell noted that it remains too early to assess the full economic impact of the Iran conflict.
The European Central Bank, the Bank of England, and the Bank of Japan also left rates unchanged but signalled their readiness to tighten policy further should inflationary pressures persist.
Technical Analysis
On the H4 chart, EUR/USD is forming a consolidation range around 1.1526. An upside breakout is expected, with a continuation wave towards 1.1647 as a near-term target. Subsequently, a new downward wave is anticipated to 1.1529. Technically, this scenario is confirmed by the MACD indicator – its signal line is above zero and pointing firmly upwards, reflecting ongoing bullish momentum and the potential for the uptrend to continue.
On the H1 chart, the market is forming the structure of the next downward wave towards 1.1499. After reaching this level, a rebound to 1.1556 is expected, with potential for the subsequent growth wave to extend to 1.1647. Technically, this scenario is confirmed by the Stochastic oscillator – its signal line is below 50 and pointing firmly downwards towards 20.
Conclusion
EUR/USD remains under pressure as geopolitical risks in the Middle East continue to drive safe-haven demand for the US dollar. With the conflict entering its fourth week and oil prices remaining elevated, inflationary concerns persist, delaying expectations for Fed rate cuts. Central banks across major economies remain alert, keeping tightening on the table. While technical indicators suggest potential short-term rebound, the broader outlook for the euro remains fragile as market risks show no signs of abating.
