EUR/USD Analysis: Why Geopolitical Risks Fail to Boost the Dollar

EUR/USD Consolidation Continues

The EUR/USD pair continues to trade within the 1.14 handle, displaying significant sideways momentum. While the pair experienced a brief decline of approximately 50 pips earlier this week, it maintained support at the 1.1410 level, aligning with the middle Bollinger Band on the daily timeframe.

Market Reaction to Middle East Geopolitics

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Despite recent escalations in the Middle East, the US Dollar has failed to attract sustained safe-haven demand. This muted reaction is echoed in the oil market, where Brent crude struggled to maintain gains above $90, retreating from a peak of $91.35 to close at $88.75. Investors currently appear to be discounting the likelihood of a prolonged energy crisis or a complete blockade of key maritime trade routes.

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Shift in Dollar Drivers

The greenback is currently more sensitive to Federal Reserve monetary policy than to geopolitical developments. Following recent US CPI and PPI releases, market expectations for a rate hike at the upcoming July Fed meeting have cooled, with the probability falling to 12% according to the CME FedWatch tool. Consequently, safe-haven flows are providing only temporary support to the dollar rather than dictating long-term trends.

Outlook and Technical Levels

Market participants view the current geopolitical tensions as transient, favoring a return to macroeconomic fundamentals. As long as the conflict remains contained, EUR/USD is expected to remain range-bound between 1.1410 and 1.1470. A move toward a diplomatic ceasefire, as recently proposed by various international mediators, could provide the catalyst for buyers to challenge the 1.1470 resistance and potentially target the 1.1500 level.

Given the failure of sellers to sustain a break below the 1.1410 floor, the market sentiment remains cautiously tilted toward looking for buying opportunities on dips. Future price action will depend heavily on whether Washington and Tehran move toward a temporary truce or choose to intensify military engagement.

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