Euro extends the range play above 1.1400 as Hormuz risks support USD
- EUR/USD continues with its struggle to gain any meaningful traction amid mixed cues.
- Hormuz risks support the safe-haven USD, capping the pair amid cooling ECB hike bets.
- Diminishing odds for Fed rate hikes act as a headwind for the buck and support the pair.
The EUR/USD pair extends its sideways consolidative price move during the Asian session on Tuesday, though it manages to hold comfortably above the 1.1400 mark. Moreover, spot prices remain well within striking distance of a nearly two-week high, touched last Thursday.
A 60-day US-Iran ceasefire is under strain amid rising tensions in the critical Strait of Hormuz, which lends some support to the US Dollar (USD) and acts as a headwind for the EUR/USD pair. In fact, a maritime agency reported that an oil tanker was struck by an unidentified projectile while transiting through the critical waterway. This keeps geopolitical risks in play and helps limit the downside for the safe-haven Greenback.
Meanwhile, the recent downfall in Crude Oil prices eased inflation concerns and reduced pressure on central banks to tighten monetary policy aggressively. Adding to this, the soft US jobs data, released last Thursday, tempered market bets for interest rate hikes by the US Federal Reserve (Fed). This holds back the USD bulls from placing aggressive bets, backing the case for some meaningful upside for the EUR/USD pair.
That said, European Central Bank (ECB) rate hike bets cooled in the wake of an unexpected fall in the Eurozone inflation, which, in turn, warrants some caution before positioning for any appreciating move for the shared currency. Hence, it will be prudent to wait for strong follow-through buying before confirming that the EUR/USD pair has bottomed out near the 1.1325 region, or the lowest since May 2025, touched in June.
Euro FAQs
The Euro is the currency for the 20 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
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
