FX.co ★ Helsinki | EUR/USD

From a fundamental perspective, the euro’s sharp drop reflects a sharp escalation in geopolitical tensions following the coordinated U.S. and Israeli military strikes on Iran over the weekend. Reports confirm that the operation resulted in the death of Iran’s Supreme Leader Ayatollah Ali Khamenei, marking a critical turning point in the dynamics in the Middle East. Tehran responded by attacking U.S. assets in neighboring countries, including the UAE, Bahrain, Kuwait, Qatar, Saudi Arabia, Jordan, Iraq, and Syria, while shipping through the Strait of Hormuz, a critical point through which 20-30% of its crude oil passes, was disrupted. Major shipping companies, including Maersk, have already announced the suspension of operations through the strait, sending oil prices up 13%, adding inflation fears to the geopolitical risk premium. The safe-haven appeal of the dollar has outweighed any potential headwinds caused by domestic policy uncertainty, with the US dollar index rising to 98.00 as investors flee risk-prone currencies. The Australian dollar fell more than 1% against the US dollar, while the euro shed about 0.5% in early trade. Complicating matters: Federal Reserve Governor Stephen Mearand continues to advocate for aggressive rate cuts, arguing that potential price pressures remain modest and that persistently high interest rates reflect distortions in the measurement of inflation rather than an actual overheating of the economy. Miran called for a “more than one-point cut in interest rates over the course of the year,” echoing an indifferent stance expressed at the Fed’s December meeting. Strategists at BNP Paribas, however, warn that a sustained rise in oil prices could complicate Fed policy while slowing economic growth and increasing inflationary pressures, potentially making it harder for the Fed to shift to rate hikes. Wells Fargo analysts note that emerging market currencies face particular vulnerability, with "initial profit-taking and selling pressure" likely to pour out of assets that accumulated valuation burdens during recent strength. The combination of geopolitical uncertainty and shifting rate expectations suggests continued volatility for EUR/USD, with the technical breakdown reinforcing the bearish fundamental outlook.

From a technical perspective, EUR/USD ended the trading week with a crucial bearish gap, opening in the 1.1740-1.1750 region, as risk aversion dominates market dynamics following military escalation in the Middle East over the weekend. The 4-hour chart confirms a significant technical breakout, with price action breaking the lower end of the multi-day trading range that price action held in late February. This breakout carries particular weight given the repeated failures near the 100-period simple moving average, which has now firmly established itself as a resistance level after its previous role as support. The 100-period SMA is currently near 1.1828, creating a huge barrier that any recovery effort must overcome to neutralize the bearish momentum. Dynamic indicators amplify the deterioration of the technical picture. The relative strength index (RSI) dropped to 39, moving firmly below the neutral threshold of 50 and indicating increasing downward momentum from the mid-levels, but not yet reaching oversold territory that could trigger a rebound. This technical adjustment suggests that sellers have regained control of short-term direction. The immediate upside potential is centered around 1.1800, where recent intraday highs converge and where selling pressure emerged early in Asian trading. A sustained move above this level would reveal more significant resistance at 1.1828, defined by the 100-period SMA on the 4-hour chart, which is the main barrier to any recovery attempt. Only a daily close above this SMA will neutralize the current bearish sentiment and open the door for 1.1860. On the downside, initial support is at 1.1750, which represents the opening level of the week and the first line of defense for the bulls. A decisive break below this level will open the door to the next support zone at 1.1720, followed by a more significant bearish target at 1.1680 if the selling pressure intensifies. The psychological 1.1700 point represents an intermediate level that could attract some buying interest, although the technical structure suggests that any bounce could remain temporary given the severity of the breakout confirmation.