EUR/USD Outlook: Geopolitical Risks and Fed Policy Weigh on Euro

The EUR/USD currency pair opened the week under pressure as market participants favored the US dollar as a safe-haven asset. Heightened geopolitical uncertainty, alongside social unrest across parts of Europe and anticipated central bank decisions, continues to weigh heavily on investor sentiment. As a result, the euro remains locked in a firm short-term downtrend despite a lack of fresh euro-negative economic data.

Central Bank Stance and Fundamental Drivers

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Both the Federal Reserve and the European Central Bank are scheduled to hold monetary policy meetings this week, with market expectations leaning toward both central banks keeping interest rates unchanged. While the Fed maintained a hawkish tone following its September rate hike, recent commentary suggests no immediate appetite for additional tightening this month. Despite neutral near-term rate expectations, the US dollar continues to outpace the euro, driven primarily by defensive capital flows.

Broader fundamental conditions present a mixed picture for the currency pair. Widespread protests over living costs in major European economies, combined with geopolitical risk in the Middle East and upcoming US political events, have bolstered risk aversion. While structural long-term factors previously limited greenback gains, short-term demand for liquidity and safe-haven assets currently dominates market dynamics.

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Technical Analysis: Resistance and Support Levels

From a technical perspective, EUR/USD maintains a clear bearish structure. The recent sell signal generated around Imbalance 19 remains active, keeping downside pressure intact. A retest of Imbalance 24 could offer another potential sell setup, as bullish momentum remains insufficient to invalidate existing resistance levels or establish a sustainable reversal pattern.

On the downside, the primary target for sellers remains the major low at 1.1066, established in June of last year. While a liquidity sweep below this support level could attract buyers, traders should wait for structural bullish confirmation before considering long positions. Given the potential for short-term corrective pullbacks, taking partial profits on existing short positions remains a prudent approach.

Key Economic Events to Watch

Market focus for the upcoming session shifts to key US economic indicators and central bank commentary. Scheduled releases include the US Durable Goods Orders report at 12:30 UTC and US New Home Sales at 14:00 UTC. Additionally, an address by ECB President Christine Lagarde at 17:00 UTC could provide further insights into European monetary policy and trigger near-term volatility.

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