The Euro rose on Monday, regaining ground against a weaker US Dollar as market sentiment improved. The EUR/USD pair climbed to above 1.1580 from a low of 1.1490, following tensions in the Middle East, particularly Israel’s actions against Iran. Although hostilities continued over the weekend, the situation didn’t escalate regionally. Iran did not threaten the Strait of Hormuz, an important route for oil, which could have drawn the US into the conflict.

Market Reactions and Dollar Decline

The US Dollar, which had gained due to safety concerns, is now falling. This is driven by ongoing uncertainties around tariffs and a lack of progress in trade negotiations. Investors are also focused on the Federal Reserve’s upcoming monetary policy decision, with expectations of a potentially cautious statement. In Europe, Bundesbank President Joachim Nagel emphasized a neutral position but noted the need for flexible monetary policy. The Eurozone’s industrial production fell by 2.4% in April, compared to an expected drop of 1.7%. The EUR/USD pair is still on an upward trend, finding support between 1.1495 and 1.1500. The next resistance level is in the 1.1615-1.1630 range. If the pair drops below 1.1460, the optimistic outlook may change. Monday’s recovery in the Euro appeared more as a correction than a shift in momentum, reversing some of last week’s significant moves driven mainly by geopolitical issues rather than economic factors. The real concern for markets was not the tensions between Israel and Iran but how those tensions remained contained. The Strait of Hormuz, a crucial oil shipping route, was not affected, easing fears that Iran could escalate pressures. This temporary relief allowed investors to take on more risk, which weakened the Dollar and lifted the Euro. The Dollar’s weakness was intensified by various uncertainties. With tariff policies still undecided and trade talks lacking concrete results, there is growing concern that the US may lack clear economic direction for a while. While there is known demand for the Dollar during stressful periods, traders seem to be reevaluating how long to maintain safe positions without new catalysts—especially when economic data and central bank comments suggest a different outlook.

Fed Policy and Eurozone Strategy

Markets are preparing for the Federal Reserve’s next actions. Jerome Powell and his team are under increasing scrutiny as inflation risks no longer require strong responses and employment numbers are softening slightly. If the Federal Reserve signals a shift toward loosening policy or questions the need to keep restraint, it would reduce the yield advantage of US assets. This potential is gradually being factored into the markets, leading to temporary dips in the Dollar. In Europe, Nagel’s comments did not cause significant movement but reinforced the strategy of Eurozone policymakers: wait, evaluate, and leave room for adjustments. Flexibility is the focus—not expansion or tightening, just options. The recent drop in industrial output provides the European Central Bank with reasons to avoid surprises. However, the sharper than expected contraction highlights ongoing fragility in Eurozone growth. While this fragility doesn’t currently threaten the currency’s trajectory, it limits potential beyond immediate technical levels. The EUR/USD pair is still respecting its established channel. Recent lows around 1.1495 to 1.1500 have proven to be strong support. The markets seem hesitant to test these levels again without additional tension or changes in policy. Resistance remains in the 1.1615 to 1.1630 area, allowing for possible brief upward movements, especially if this week’s US data or Fed guidance disappoints. Beneath this, a crucial level near 1.1460 exists. If the pair decisively breaks below this and stays there, the optimism would shift and suggest fading interest across key Euro pairs. In the short term, price actions imply more responsiveness to Dollar sentiment than any European movements. From our viewpoint, the focus should shift to upcoming Fed statements and US economic data. Unless new surprises arise from the Middle East, upcoming days are likely to be more influenced by policy tone and economic indicators than by headline news. Traders sensitive to price changes should stay alert to how closely the pair remains at its current support before predicting any sustained upward movement. Create your live VT Markets account and start trading now.

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