EUR/USD Tests Key Support as Bullish Channel Faces Breakdown Risk

Summary:

The EUR/USD pair ekes out modest gains after a sharp fall, weighed by surging oil prices, escalating Middle East conflict, and looming Federal Reserve policy risks.

BUY EURUSD

Close Time

CLOSED

1.15216

Entry Price

1.16500

1.14300

1.18775 +0.00070 +0.06%

74.6

Pips

Profit

1.14300

1.15962

Exit Price

1.15216

Entry Price

1.16500

The euro has managed to claw back minor gains against the U.S. dollar on Wednesday, trading near 1.1500, as the common currency attempts to recover from Tuesday’s sharp sell-off. However, any meaningful upside remains elusive, with a cocktail of geopolitical instability, rising energy costs, and investor caution ahead of the Federal Reserve’s policy decision all limiting the rebound.

On Tuesday, EUR/USD suffered a steep drop, driven largely by market jitters over growing tensions in the Middle East. As the Israel-Iran conflict drags into its sixth consecutive day, financial markets have become increasingly risk-averse. U.S. officials have ratcheted up their rhetoric, with speculation swirling that President Donald Trump is considering direct military action to force a complete dismantling of Iran’s nuclear ambitions. That prospect has sharply heightened fears of regional escalation.

In response, Iran’s ambassador to the United Nations warned that Tehran would retaliate to any U.S. strike, a statement that deepened concerns across global markets. With geopolitical risk premiums rising, investors are pouring into traditional safe havens—chief among them the U.S. dollar—undermining demand for the euro.

The impact of this geopolitical overhang is further compounded by a surge in oil prices. Brent crude jumped more than $3 on Tuesday, nearing $75 per barrel—marking a stunning 16% rally since May. For the Eurozone, which is a net energy importer, elevated crude prices translate into rising input costs and margin compression across industrial sectors, thus adding a layer of downside risk to an already fragile economic outlook. Higher oil prices threaten to stall consumer demand and further dampen growth across the bloc, keeping the euro under pressure.

Meanwhile, the latest Eurozone CPI data offered little reprieve. Final consumer price index figures confirmed earlier estimates, indicating a deceleration in inflationary pressure. While a moderation in inflation might typically be seen as a relief, in the context of slowing growth and a potentially more dovish European Central Bank (ECB), the subdued inflation data failed to support the euro. With the ECB unlikely to pivot hawkishly in the near term, rate differentials between the euro and dollar continue to favor the greenback.

Market participants are now firmly focused on the Federal Reserve’s interest rate decision scheduled for later Wednesday. Although the Fed is widely expected to hold rates steady, traders are laser-focused on the central bank’s updated projections and “dot plot,” which could recalibrate expectations around future rate moves. Chairman Jerome Powell’s press conference will be scrutinized for signals on how the Fed intends to navigate the conflicting dynamics of slowing U.S. growth and stubbornly high inflation.

A hawkish tilt in Powell’s comments—particularly if accompanied by upward revisions to inflation forecasts—could reenergize the dollar and spell further trouble for the euro.

Technical Analysis

From a technical standpoint, the EUR/USD pair is showing early signs of a tentative bounce after finding support around the 1.1450–1.1500 area. Tuesday’s fall saw the pair lean into its 50-period Exponential Moving Average (EMA50), which has provided a soft floor for now.

The Relative Strength Index (RSI) has started to curve up from oversold territory, suggesting the potential for a short-term rebound. Price action continues to hover within a broad ascending channel that has defined the pair’s structure in recent weeks. The current zone being tested represents a confluence of technical interest: it aligns with the lower boundary of the channel, a notable liquidity cluster, and the key 0.5–0.618 Fibonacci retracement level of the latest upswing.

This area could offer a compelling entry point for bulls—if the pair manages to hold above it and posts a bullish confirmation candle. Should that occur, the next logical upside target would be the 1.1650 level, which marks the upper range of recent consolidation and coincides with the previous week’s highs.

However, the technical outlook will quickly sour if the euro fails to defend this support zone. A clear breakdown below the channel and the Fib cluster would invalidate the short-term bullish thesis and potentially open the door for a deeper correction toward the 1.1350–1.1400 area.

TRADE RECOMMENDATION

BUY EURUSD

ENTRY PRICE: 1.1520

STOP LOSS: 1.1430

TAKE PROFIT: 1.1650

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EUR/USD Tests Key Support as Bullish Channel Faces Breakdown Risk

Risk Disclosure