EUR/USD Analysis: Strait of Hormuz Tensions Pressure the Euro

The EUR/USD exchange rate has retreated toward the psychological 1.1700 level, where it currently encounters support from the 100-day Simple Moving Average (SMA). This downward momentum persists for a second consecutive session as geopolitical risks weigh on the common currency. Meanwhile, the U.S. Dollar Index (DXY) remains resilient, trading near weekly highs around 98.55.

Geopolitical Escalation in the Middle East

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Market sentiment has shifted toward safe-haven assets following reports that the Islamic Revolutionary Guard Corps (IRGC) seized two vessels in the Strait of Hormuz. This escalation in a strategically vital waterway follows previous reports of maritime attacks monitored by the UK Maritime Trade Operations. These events have introduced fresh volatility into the currency markets, providing a tailwind for the greenback.

U.S. President Donald Trump recently extended a truce with Iran shortly before its expiration, maintaining a strategy of economic pressure on Tehran. Iranian officials have responded by stating that the removal of the U.S. naval blockade is a prerequisite for continued negotiations. Market participants generally view this ceasefire as a temporary pause rather than a permanent resolution, which limits the upside for EUR/USD.

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Macroeconomic Drivers and Inflation Risks

Persistently high oil prices are complicating the outlook for global inflation and central bank policy. Investors currently anticipate that the Federal Reserve will maintain elevated interest rates for an extended period to combat price pressures. While the market continues to weigh potential rate hikes from the European Central Bank, the euro faces headwinds from deteriorating domestic fundamentals.

Economic data from the eurozone further underscores these challenges, with the preliminary consumer confidence index for April falling to -20.6 from a previous reading of -16.3. This three-year low reflects declining household sentiment amid high energy costs and regional instability. Low U.S. economic activity on the calendar for Wednesday suggests that geopolitics will remain the primary driver for price action.

Technical Outlook and Support Levels

From a technical perspective, EUR/USD is currently holding above its major long-term moving averages despite the recent weakness. The Relative Strength Index (RSI) has dipped into neutral territory, indicating a loss of momentum among buyers. However, the bullish structure remains technically intact as long as the 200-day SMA maintains its positive slope.

Traders are closely monitoring the 1.1700 level as a critical pivot point for the pair. A sustained break below this support could accelerate the current downtrend toward deeper technical levels. Conversely, a stabilization in the Strait of Hormuz could allow the bulls to regain control and attempt a recovery toward the highs seen earlier this month.

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