EUR/USD Weekly Forecast: Winds of change blowing into the Federal Reserve

The EUR/USD pair fell towards 1.1417, its lowest since last March, as the US Dollar (USD) soared following the first Federal Reserve (Fed) monetary policy meeting chaired by Kevin Warsh. EUR/USD got to recover some ground on Friday, finishing the week, however, well below the 1.1500 mark.

Two factors put the Greenback on the bullish track: an agreement between Iran and the US to end the war, and a surprisingly hawkish announcement from the Fed, forcing investors to rethink their views on the American currency’s future.

Winds of change

The Fed announced its monetary policy decision on Wednesday, and as widely anticipated, the central bank left the Fed's fund rate unchanged, floating between 3.50% and 3.75%. The Summary of Economic Projections (SEP) delivered the first surprise, as, out of 19 members, dots came from only 18 voters: of course, the one that refrained from providing forward guidance was Chair Kevin Warsh.

The document included upward revisions to inflation and interest rates forecasts, alongside modest downward revisions to growth perspectives. No news there, as it reflected policymakers' focus on inflationary pressures. And indeed, Warsh press conference revolved around it: he repeatedly noted that the central bank's goal is to restore price stability, while inflation remains well above target. His hawkish words boosted speculation of upcoming rate hikes.

Also, the usual Federal Open Market Committee (FOMC) statement was halved, as Warsh removed all hints of future Fed action. He also announced a broad review of the Fed's framework. Alongside that line, he clarified that five task forces will focus on communications, the balance sheet, data sources, productivity and employment, and the Fed's inflation framework, and are expected to propose recommendations for future changes.

Warsh made it clear that a new communications regime has begun, in which market players won’t be able to speculate about what the Fed will or won’t do: it will all depend on macroeconomic data and economic health. At this point, officials' views on growth and employment seem confident, while those on inflation are worrisome.

Following the announcement, speculative interest rushed to price in rate hikes coming and probably more than one before year-end, driving US Dollar demand.

Iran's war on a firmer pause

Beyond the Fed’s announcement, investors welcomed news that US President Donald Trump and his Iranian counterpart, President Masoud Pezeshkian, signed an agreement that restores traffic through the Strait of Hormuz and opens a 60-day period for negotiations toward a final deal. The agreement also includes Iran resuming Oil exports and the US waiving sanctions on the Middle East country.

On Friday, a senior US official reported that Israel and Hezbollah have agreed to a ceasefire, according to headlines coming from Reuters, although markets hardly reacted to the headlines, taking them with a pinch of salt. The other one is Iran’s nuclear power, something to discuss in the 60-day window. Generally speaking, however, markets are optimistic, limiting USD strength by the end of the week.

European Central Bank hike fading into oblivion

Market players seem to have forgotten that the European Central Bank (ECB) delivered interest rate hikes just one week before the Fed’s monetary policy announcement. Indeed, ECB officials delivered a more cautious decision, repeating that they will remain data-dependent. But it’s also true that the ECB was left alone. Different European central banks announced their monetary policy decisions this week, including the Bank of England (BoE), the Swiss National Bank (SNB), and Norges Bank, and all kept rates unchanged.

Besides, growth in the Old Continent has become sluggish, and fears of persistent stagflation spread. That said, it’s clear that the US economy is in a much better place than the European one, while even after the ECB hike, rates are still higher in the US. The ECB rate hike is meaningless and investors finally saw it.

Macroeconomic data in the docket

Confirming Eurozone tepid performance, Industrial Production rose a modest 0.1% in May. The bloc also confirmed that inflation, as measured by the Harmonized Index of Consumer Prices (HICP), rose by 3.2% YoY in May, while the core annual HICP hit 2.6%. The US reported May Retail Sales, which rose 0.9% MoM in May.

In the upcoming days, focus will return to ECB and Fed officials’ words, with ECB President Christine Lagarde opening the calendar on Monday. The European Union (EU) will publish the preliminary estimate of June Consumer Confidence, while the Hamburg Commercial Bank (HCOB) will unveil the preliminary estimates of the June Purchasing Managers’ Indexes (PMIs).

Germany has scheduled the June IFO survey on Business Climate and the GfK Consumer Confidence survey for the same month. As for the US, investors will be looking for clues coming from the preliminary estimates of the June S&P Global PMIs and May Personal Consumption Expenditures (PCE) Price Index data. The country will also publish the final revision of the Q1 Gross Domestic Product (GDP), May Durable Goods Orders, and the final reading of the June Michigan Consumer Sentiment Index.

EUR/USD Technical Outlook:

In the daily chart, EUR/USD trades beneath all the key moving averages, keeping a clear bearish near-term bias. The 20-day Simple Moving Average (SMA) at 1.1579, together with the 100-day SMA at 1.1667 and the 200-day SMA at 1.1672 overhead, suggests rallies are likely to be capped while the pair remains entrenched below this stacked resistance zone. Momentum stays negative, with the indicator lacking directional strength in negative territory and the Relative Strength Index (RSI) indicator hovering just above oversold levels near 35 without signaling downward exhaustion.

Bigger time frames also support the bearish case, as EUR/USD moved further below the 20-week SMA at 1.1654. The longer moving averages remain far below the current level, with the 100-week SMA at 1.1285 and the 200-week SMA at 1.0986. Weekly Momentum has just turned marginally positive, but the Relative Strength Index heads south near 42, suggesting that rebounds may struggle while the 20-week SMA caps the topside.

On the topside, initial resistance is located at the 20-day SMA around 1.1579, where any recovery would first be tested. A sustained break above that area would then expose the 1.1660 region, followed closely by the 200-day SMA at 1.1672, which together define a more decisive bearish threshold; only a daily close above this cluster would start to ease the downside pressure. On the downside, immediate support is seen at the 1.1400 threshold, with a break below ti exposing the 100-week SMA near 1.1285.

(The technical analysis of this story was written with the help of an AI tool.)