Bearish view
Sell the EUR/USD pair and set a take-profit at 1.1326.
Add a stop-loss at 1.1500.
Timeline: 1-2 days.
Bullish view
Buy the EUR/USD pair and set a take-profit at 1.1500.
Add a stop-loss at 1.1326.
The EUR/USD pair pulled back as the US dollar rose modestly as the crisis in the Middle East continued. It dropped to 1.1415, a few pips below last week’s high of 1.1482. This retreat may continue ahead of the upcoming European Central Bank (ECB) interest rate decision.
Geopolitical Tensions are Rising
The EUR/USD pair has come under pressure as the US dollar has crawled back amid the rising geopolitical tensions that have pushed crude oil prices higher. Brent and the West Texas Intermediate (WTI) have jumped by double digits from the lowest level in June.
Oil prices may continue rising after Houthis announced a naval blockade against Saudi Arabia. If this blockade works, there is a likelihood that oil prices will continue rising as inventories remain at significantly low levels. Estimates are that it would deprive the oil market with about 7 million barrels a day.
US gasoline prices crossed the $4 milestone on Monday, and this trend may continue if the US-Iran conflict continues. As a result, there is a possibility that inflation, which dropped in June, will start rising again. This explains why odds of the Federal Reserve hiking interest rates have jumped on Polymarket and Kalshi.
There will be no macro news on the economic calendar today. As such, traders will continue focusing on the US-Iran war and the upcoming European Central Bank (ECB) interest rate decision. Economists expect the bank to leave interest rates unchanged, while maintaining the openness to hiking interest rates if inflation remains at an elevated level.
The most recent data showed that the euro area inflation rate dropped slightly in June, but remained above the 2% target rate. A continuation of the war will push the bank to hike interest rates again this year.
EUR/USD Technical Analysis
The EUR/USD pair has pulled back in the past few days. It has slipped from a high of 1.1482 last week to the current 1.1415.
The pair is now in the process of forming a bearish flag pattern. This pattern is made up of an ascending channel and a vertical line. It has also remained below the major S/R pivot point of the Murrey Math Lines tool.
The pair has moved below the 50-day Exponential Moving Average (EMA). Therefore, the pair will likely have a bearish breakout, potentially to the year-to-date low of 1.1326.
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