EUR/USD Analysis: Dollar Strengthens Amid Geopolitical Risk

Market Overview

The US dollar is concluding its strongest week in a month, trading near levels not seen since early July. Heightened geopolitical tensions in the Middle East and increased demand for safe-haven assets ahead of the upcoming Federal Reserve meeting have bolstered the greenback's performance.

Geopolitical and Economic Drivers

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Escalating conflicts and the potential for a blockade of the Strait of Hormuz have pushed oil prices above $100 per barrel. Goldman Sachs notes that currency markets are increasingly pricing in the divergent impacts of these energy costs on net oil exporters versus importers. Furthermore, new US trade tariffs ranging from 10% to 12.5% on major partners have added to market uncertainty.

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Monetary Policy and Treasury Yields

Interest-rate volatility remains a primary driver, with 10-year Treasury yields reaching their highest levels since January 2025. Futures markets currently assign a roughly one-in-three probability to a 25 basis point rate hike by the Federal Reserve next week. While economists surveyed by Bloomberg generally anticipate a rate cut, expectations for the timing have shifted to Q3 2027.

Eurozone Economic Data

Eurozone composite PMI data provided a brief positive signal for the euro, rising to 51.9 in July, the first reading above the 50-threshold since March. Both Germany and France showed signs of recovery in business activity. However, analysts suggest this optimism may be tempered by the risks of a relapse in economic performance if energy prices continue to rise.

Technical Outlook

On the daily chart, the EUR/USD pair is currently testing the lower boundary of the 1.138–1.145 support range. A decisive break below the 1.138 level would signal a potential resumption of the prevailing downtrend and increase bearish momentum. Conversely, a technical rebound from this support zone may offer an entry point for long positions.

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