EUR/USD is positioned around 1.1620 on Friday, as the US dollar is set to appreciate by roughly 1% by the week’s conclusion. The dollar is experiencing gains due to increased safe-haven demand, driven by the intensifying conflict in the Middle East and the upward trend in crude oil prices. The collaborative military operation between the US and Israel targeting Iran has now reached its seventh day. Tehran has initiated a new series of missile and drone strikes aimed at Gulf countries. The President of the United States, Donald Trump, expressed his desire to participate in the selection of Iran’s forthcoming leader. Simultaneously, he characterized the appointment of Mojtaba Khamenei – the son of the late Supreme Leader – as improbable.
Increasing oil prices have intensified worries about a potential resurgence of global inflation, strengthening the belief that the Federal Reserve might postpone any cuts to interest rates. Markets currently expect the initial Fed rate cut to occur no sooner than September or October, a revision from the earlier forecast of July. This week, the dollar exhibited notable strength against the euro, highlighting the European economy’s significant dependence on oil imports from the Middle East. On the H4 chart, EUR/USD is establishing a tight consolidation range near the 1.1600 level. The existing framework indicates a strong likelihood of a movement towards 1.1533, with potential for further extension to 1.1500. A downside breakout from this range would pave the way for the latter part of the momentum to materialize, with targets set at a minimum of approximately 1.1400. This scenario is validated by the MACD indicator, which shows the signal line positioned below zero and trending downward, indicating persistent bearish momentum.
On the H1 chart, the market has finalized a growth wave aimed at 1.1620, subsequently experiencing a decline to establish a consolidation range near 1.1600. An upside breakout from this range could initiate another growth phase to 1.1660, possibly extending to 1.1675, after which the overall downward trend is expected to continue towards 1.1500. A downside breakout from the range would trigger a continuation wave towards 1.1500, potentially signaling the completion of the third wave in the larger downward trend. This situation is validated by the Stochastic oscillator, as its signal line has deviated from 80, suggesting a brief decline towards the 20 level.
The EUR/USD pair is currently facing considerable downward pressure due to escalating geopolitical tensions in the Middle East. This situation is prompting safe-haven investments in the US dollar, simultaneously causing an increase in oil prices and raising concerns about inflation. The interplay between postponed expectations for a Fed rate cut and Europe’s specific susceptibility to energy disruptions has intensified the euro’s decline. Given the current technical indicators indicating a downward trajectory, it seems probable that additional declines are on the horizon. However, we may witness a brief period of consolidation around critical levels before the next phase of the downtrend unfolds.