EUR/USD retreats as Israel-Iran conflict jolts markets, ends 4-day rally
- Euro hit hard despite stable EU inflation data as geopolitical tensions boost US Dollar.
- Israel’s strike on Iran triggers safe-haven flows into the Dollar; EUR/USD drops from 1.16 to 1.1488 intraday.
- Tehran cancels nuclear talks; risk sentiment deteriorates, overshadowing soft US inflation.
- Eurozone industrial output contracts sharply; German CPI steady at 2.1%, but French and Spanish inflation slip below ECB target.
EUR/USD ends four-day winning streak, prints losses on Friday as risk appetite takes a hit after Israel launched an attack on Iran, boosting the safe-haven appeal of the US Dollar (USD). At the time of writing, the pair trades around 1.1530, down 0.36%.
Sentiment shifted sourly after breaking news revealed Israel’s attack, which targeted Iranian militia officials, installations and nuclear facilities. Consequently, Iran retaliated, sending over a hundred drones and canceling the sixth round of nuclear negotiations, according to the Tehran Times.
On the headlines, the US Dollar appreciated against most G7 currencies, with the Euro being hardly damaged, as the pair hit 1.1488, down almost 0.80% in the day.
According to Reuters, US President Donald Trump said that it’s unclear if Iran still has a nuclear program. He said, “I tried to save Iran humiliation and death,” adding that he’s not concerned about a regional breakout.
Recently, data from the United States (US) revealed that consumers are growing more optimistic about the economy, according to the University of Michigan (UoM). Regarding inflation expectations, Americans are still seeing prices above the Federal Reserve's (Fed) 2% target, despite inflation data released during the week increasing bets that the Fed could cut rates in 2025.
In the Eurozone (EU), German inflation figures for May remained unchanged at 2.1% YoY, as expected. Inflation in France and Spain remains below the European Central Bank (ECB) 2% target. Industrial production across the bloc plummeted in April, following a 2.4% growth in March, and came in at -2.4% YoY, which is below forecasts for a 1.7% contraction.
Daily digest market movers: EUR/USD dives on risk-off mood, boosting the Dollar
- Despite retreating, EUR/USD appears poised to resume its uptrend, as ECB officials have become slightly hawkish, and news that US-China talks could provide relief for investors. Nonetheless, an escalation of the Israel-Iran war exerts downward pressure on the pair.
- The University of Michigan Consumer Sentiment Index rose to 60.5 in June from 52.2, reflecting growing optimism among households. Inflation expectations eased, with the one-year outlook dropping from 6.6% to 5.1% and the five-year forecast ticking down from 4.2% to 4.1%.
- Next week, the US Federal Reserve (Fed) is expected to keep interest rates unchanged at the June 17-18 meeting. Traders had priced in the expectation that rates would remain unchanged, but what they’re eyeing is the update of the Summary of Economic Projections (SEP).
- Financial market players do not expect that the ECB would reduce its Deposit Facility Rate by 25 basis points (bps) at the July monetary policy meeting.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.29% | -0.28% | -0.66% | -0.74% | 0.12% | 0.00% | -1.28% | |
| EUR | 1.29% | 1.01% | 0.61% | 0.54% | 1.45% | 1.29% | -0.00% | |
| GBP | 0.28% | -1.01% | -0.31% | -0.47% | 0.44% | 0.28% | -1.01% | |
| JPY | 0.66% | -0.61% | 0.31% | -0.07% | 0.74% | 0.61% | -0.74% | |
| CAD | 0.74% | -0.54% | 0.47% | 0.07% | 0.86% | 0.75% | -0.54% | |
| AUD | -0.12% | -1.45% | -0.44% | -0.74% | -0.86% | -0.15% | -1.43% | |
| NZD | 0.00% | -1.29% | -0.28% | -0.61% | -0.75% | 0.15% | -1.28% | |
| CHF | 1.28% | 0.00% | 1.01% | 0.74% | 0.54% | 1.43% | 1.28% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Technical outlook: EUR/USD hovers below 1.1550 as US Dollar stages a comeback
The EUR/USD uptrend remains in place as the pair has printed a successive series of higher highs and higher lows. In addition, momentum remains bullish, as indicated by the Relative Strength Index (RSI), which remains above its neutral 50 level despite aiming downwards.
That said, the first resistance for EUR/USD is 1.1550. A breach of the latter will expose 1.16 and the year-to-date (YTD) peak of 1.1631. Once surpassed, 1.17 is up next. Conversely, if EUR/USD remains below 1.1550, expect a pullback towards 1.15. Once cleared, the next stop would be 1.1450, followed by the 20-day Simple Moving Average (SMA) at 1.1386.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Author
Christian Borjon Valencia
FXStreet
Christian Borjon began his career as a retail trader in 2010, mainly focused on technical analysis and strategies around it. He started as a swing trader, as he used to work in another industry unrelated to the financial markets.
