EUR/USD reacts to geopolitics and data: Week opens nervously

EUR/USD rose to 1.1790 on Monday. The US dollar attempted to strengthen, but part of its rally was subsequently pared back. Demand for safe-haven assets intensified over the weekend amid an escalation of the conflict in the Middle East.

The US and Israel conducted strikes on Iran, resulting in the death of the country’s supreme leader, Ayatollah Ali Khamenei. Reports also emerged of the effective closure of the Strait of Hormuz, a crucial route for global oil supplies. Tehran has responded with attacks on American targets in the region, fuelling fears of a broader conflict.

Additional support for the dollar came from US producer inflation data. January’s PPI rose more sharply than expected, suggesting that companies are passing on tariff-related costs to consumers, which complicates the outlook for a potential Federal Reserve rate cut.

Nevertheless, the market continues to price in two 25-basis-point rate cuts from the Fed this year. The prevailing sentiment is that volatility and geopolitical risks could eventually force the central bank to ease its monetary policy.

Technical analysis

On the H4 chart of EUR/USD, the market is forming a consolidation range around the 1.1834 level. A downside breakout is expected, with the decline continuing to 1.1712, and the potential for the trend to extend further to 1.1590. Technically, this bearish scenario is confirmed by the MACD indicator, whose signal line is below zero and pointing firmly downwards, reflecting sustained bearish momentum.

On the H1 chart, the market is forming the structure of the next downward wave towards 1.1712. After reaching this level, a corrective rise to 1.1768 is anticipated, followed by the start of a new downward wave to 1.1650. Technically, this scenario is supported by the Stochastic oscillator, with its signal line below 50 and pointing firmly downwards towards the 20 level.

Conclusion

The euro is navigating a complex landscape, with safe-haven flows and geopolitical tensions in the Middle East initially boosting the US dollar, while hotter-than-expected US PPI data adds another layer of uncertainty to Fed policy. Although the market still anticipates rate cuts later this year, the immediate technical outlook for EUR/USD appears bearish, suggesting further downside in the short term.