EUR/USD Analysis: Geopolitical Risk and ECB Policy Outlook

Market Overview

The EUR/USD pair is consolidating near 1.1370 as it navigates conflicting macroeconomic and geopolitical signals. While hawkish rhetoric from the European Central Bank (ECB) and improving euro area business activity offer some support, persistent pressure from rising energy prices and Middle East instability continues to favor the U.S. dollar.

Fundamental Drivers

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During Thursday's policy meeting, the ECB maintained the deposit rate at 2.25%. ECB President Christine Lagarde signaled a high likelihood of a September rate hike, a sentiment already largely priced into current market valuations. However, these gains are currently offset by surging Brent crude prices, which recently climbed above $90 per barrel due to supply disruption concerns.

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Despite positive surprises in the preliminary July PMI data, with manufacturing rising to 52.0 and services to 51.6, the euro remains constrained. The market is increasingly focused on the Federal Reserve’s upcoming policy meeting, where the probability of a rate hike in September has risen to 80% according to the CME FedWatch Tool.

Technical Analysis

Technically, EUR/USD maintains a bearish bias while trading below key resistance levels. The pair remains under both the 50-period EMA (1.1485) and the 200-period EMA (1.1565). Downside momentum is supported by the daily RSI near 39 and the OsMA approaching negative territory.

Resistance remains firm at 1.1412, 1.1435, and 1.1457. A sustained breakout above 1.1460 would be required to shift the outlook toward 1.1500 and beyond. On the downside, critical support is located at the 2026 low of 1.1325, with further weakness potentially exposing the 1.1290 level.

Strategic Outlook

The pair is currently in a decisive phase, with the 1.1350 level acting as a short-term pivot. For short-term traders, the technical structure suggests a preference for short positions on a confirmed break below 1.1350, targeting 1.1325 and 1.1290. Conversely, long positions warrant caution and require a breakout above 1.1420.

Medium-term participants may favor a wait-and-see approach until the volatility surrounding the Federal Reserve meeting and regional geopolitical events subsides. Disciplined risk management and the use of stop-loss orders remain essential given the potential for rapid fluctuations in sentiment.

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