Euro declines below 1.1600 on US-Iran war worries
- EUR/USD softens to near 1.1575 in Tuesday’s early Asian session.
- Trump said he’s not looking to extend the ceasefire deal with Iran.
- Traders walked back expectations of near-term Fed monetary tightening.
The EUR/USD pair loses traction to around 1.1575, snapping the three-day winning streak during the early European session on Tuesday. The Euro (EUR) edges lower against the US Dollar (USD) as traders remain cautious about the US-Iran conflict and the closure of the Strait of Hormuz.
Reuters reported on Tuesday that the UK Maritime Trade Operations (UKMTO) said that it has received a report of an incident in the critical waterway. UKMTO said that a company security officer has reported that the vessel was struck by an unknown projectile while conducting an outbound transit of the strait.
On Monday, US President Donald Trump said that he is not interested in renewing the expiring agreement with Iran. Meanwhile, Iran’s Foreign Ministry spokesman Esmail Baghaei stated that a deal has been elusive due to security complexities and the “obstructionist behavior of destructive elements,” adding that the US must remove its blockade.
Ongoing tensions in the Middle East could boost a safe-haven currency such as the Greenback and act as a headwind for EUR/USD in the near term. However, lower bets for a September Federal Reserve (Fed) rate hike following soft US economic data might weigh on the USD.
Data showed last week that US Retail Sales dropped in July for the first time in nine months, following unexpected job losses last month and tame inflation figures. Traders expect a 35% odds of a rate hike at the Fed's September meeting, compared to 47% a month earlier, according to the CME FedWatch tool.
Euro support underpinned by Eurozone resilience and narrowing US yield gap
Strategists at Scotiabank highlight that the recent “firming trend in the EUR reflects economic resilience in the Eurozone despite headwinds from energy and drought conditions as well as the narrowing yield spreads between the Eurozone and the US.” They note that this combination of solid underlying activity and a reduced rate disadvantage versus the US is helping to sustain demand for the single currency.
Technical Analysis: EUR/USD keeps a bullish vibe above the key SMA
In the daily chart, EUR/USD holds a modest bullish near-term bias as spot consolidates around the daily opening pivot at 1.1573 while remaining supported by the 100-day simple moving average (SMA) just below. Price also stands above the 20-day Bollinger middle band near 1.1498, reinforcing a constructive tone, while the Relative Strength Index (14) at 62 suggests firm but not extreme upside momentum.
On the topside, initial resistance is located at the 20-day Bollinger upper band around 1.1642, where buying pressure could start to fade. On the downside, immediate support is seen at the 100-day SMA at 1.1570, followed by the Bollinger middle band near 1.1500 and the lower band around 1.1355, which together define a broader demand zone if a deeper pullback unfolds.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.