EUR/USD Loses Ground as Market Sentiment Favours the US Dollar
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Dollar Surges as Fed Signals Continued Tightening
The euro experienced a significant downturn against the US dollar on Friday, plumbing depths not seen since March 31, 2026. Trading activity settled near the 1.1457 level, reflecting a strong bearish sentiment for the shared currency. This weakening is largely attributed to a palpable shift in market expectations, with investors now pricing in a greater likelihood of additional monetary policy adjustments by the US Federal Reserve.
Earlier in the week, the Federal Reserve opted to maintain its benchmark interest rates at their current levels. However, the accompanying economic projections painted a different picture. Crucially, the updated forecasts revealed that a significant portion, precisely half, of the Federal Open Market Committee (FOMC) members still foresee at least one more rate increase as a distinct possibility in the future. This hawkish undertone, despite the pause in rate hikes, has injected renewed vigor into the US dollar.
Adding to the inflationary concerns, the central bank also revised its inflation forecasts upward. This adjustment acknowledges the lingering impact of recent geopolitical events, specifically the conflict in the Middle East. While the new Fed Chair, Kevin Warsh, did not offer a crystal-clear roadmap for future rate decisions, he emphatically reaffirmed the central bank's unwavering commitment to its primary objective: curbing inflation and steering it back towards the established target.
Geopolitical Calm Overshadowed by Monetary Policy Focus
Concurrently, a glimmer of geopolitical relief emerged as an interim peace accord between the United States and Iran officially took effect. This development contributed to a moderation in global geopolitical tensions, which in turn exerted downward pressure on oil prices. However, this easing of international friction appears to have been a secondary consideration for market participants.
The overarching narrative dominating trading desks and investor sentiment remains firmly rooted in the future trajectory of the Federal Reserve's monetary policy. The anticipation of continued hawkishness, underscored by the FOMC's internal projections and inflation outlook, is proving to be a far more potent driver for currency markets than the receding geopolitical risks. This intense focus on the Fed's playbook is consequently bolstering demand for the US dollar, creating a challenging environment for its major currency counterparts.
Reading Between the Lines
The technical charts offer a stark visual of the prevailing bearish momentum for EUR/USD. On the 4-hour timeframe, price action had been confined within a consolidation range near 1.1467. However, this sideways movement has recently given way to a downward expansion, with the range now stretching from 1.1417 to 1.1450.
Should the price manage to breach the upper boundary of this range, a short-term corrective rally towards 1.1590 could materialize. Yet, this potential upside is viewed as a precursor to a subsequent decline, with analysts eyeing a move down to 1.1385. Conversely, a direct breakdown below the lower range support at 1.1417 would likely accelerate the downward trend, potentially targeting the 1.1313 level.
Supporting this bearish outlook is the MACD indicator. Its signal line is firmly entrenched below the zero line and exhibits a consistent downward trajectory. This technical configuration strongly suggests that bearish momentum remains dominant, reinforcing the possibility of an extended downtrend. On the 1-hour chart, a completed upward price structure towards 1.1480 has given way to renewed consolidation below this peak. The current technical picture favors a potential downward extension of this range, possibly towards 1.1414 on the lower end and 1.1444 on the upper end, before ultimately succumbing to pressure and falling towards 1.1385.
The Stochastic oscillator on the 1-hour chart also hints at further weakness. Its signal line is currently below the 20 threshold, suggesting oversold conditions. While a minor upward retracement towards the 50 level might occur, the expectation is for a firm reversal and a renewed descent back towards the 20 mark, signaling a continuation of the prevailing bearish sentiment.
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