Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1350.
- Add a stop-loss at 1.1630.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1630.
- Add a stop-loss at 1.1350.
The EUR/USD exchange rate pulled back on Monday as the market reacted to the rising geopolitical risks and rising crude oil prices. The pair retreated to 1.1522, down from this month’s high of 1.1630.
Geopolitical Tensions and Inflation Risks
The EUR/USD pair reacted to the ongoing tensions in the Middle East after Donald Trump bombed top Iranian nuclear sites, leading to concerns about a wider conflict in the region.
Crude oil prices have already surged by over 30% from their lowest levels this year, and analysts warn that the trend will continue. Shipping prices have also jumped in the past few months, which will continue as risks about the Strait of Hormuz continue.
This, trend will likely lead to higher consumer prices in the United States and other countries. As a result, there is a likelihood that the Federal Reserve will maintain a more hawkish tone this year.
The bank left interest rates unchanged between 4.25% and 4.50% in its meeting last week. Officials, using the dot plot, predicted that they would deliver two cuts this year, and four in 2026 and 2027.
Donald Trump has pushed the Fed to slash interest rates by at least 1%. He believes that the high interest rates were costing the US billions of dollars in interest payments. He also believes that high rates were putting the US at an unfair advantage compared to other countries.
The next key catalyst for the EUR/USD pair will be the upcoming US and European flash manufacturing and services PMI numbers. Economists expect the data to show that Europe’s manufacturing PMI rose slightly to 49.7, while the services one rose from 50.2 to 50.5.
The other top economic data will be the upcoming US consumer confidence on Tuesday, GDP on Thursday, and Friday’s PCE data.
EUR/USD technical analysis
The EUR/EUR exchange rate pulled back slightly after the US bombed Iran. It retreated to 1.1522 on Monday, down from the year-to-date high of 1.1631.
The pair has formed a double-top pattern at 1.1573 and the neckline at 1.1062. It has formed an ascending channel, which connects the highest and lowest swings since May 12.
The pair remains slightly above the 50-day and 100-day Exponential Moving Averages. Therefore, the pair will likely remain on edge as traders wait and see on the ongoing geopolitical issues. The key support and resistance levels to watch will be at 1.1350 and 1.1630.
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Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.
