During Wednesday's Asian trading session, the euro traded around the 1.1400 key level against the US dollar, but upward momentum was clearly insufficient, consistently failing to attract effective follow-through buying.
The US-Iran conflict has escalated once more. The US military launched a new round of airstrikes on Iran and revoked Iran's oil export licenses. This geopolitical risk premium was quickly priced into the markets, leading to broad-based strength in the safe-haven US dollar, which became the core factor suppressing a euro rebound.
Geopolitical Tensions: New Airstrikes and Escalating Iran Situation
On Tuesday, following attacks on three oil tankers in the Strait of Hormuz, the US military conducted a new round of strikes against Iran. This action risks a substantive breakdown of the provisional peace agreement signed just last month.
Concurrently, Washington revoked key licenses that allowed Iran to sell oil on international markets. This decision directly cuts off Iran's oil export channels.
The sudden escalation in the geopolitical situation quickly triggered a chain reaction in markets. Crude oil prices surged significantly, reigniting energy-driven inflation concerns and accelerating a flow of safe-haven funds into the US dollar. As a risk-sensitive currency, the euro bore the brunt of the pressure, facing significant selling across both cross and direct pairs.
Monetary Policy: Rate Hike Expectations Rekindled, Treasury Yields Offer Additional Support
Rising oil prices not only push up inflation expectations but also directly strengthen market bets on a Federal Reserve rate hike within the year. Traders have now fully priced in a 100% probability of one Fed rate hike by 2026. US Treasury yields rose in response, further widening the dollar's interest rate differential advantage.
It is worth noting that while Fed rate hike expectations are supportive for the dollar, the market remains divided on how to price the extent of tightening—whether it will be a single "precautionary hike" or the "start of a hiking cycle."
Clues to answer this question may be found in tonight's release of the FOMC meeting minutes.
Market Focus: Awaiting Direction from FOMC Minutes
Early Thursday morning, Beijing time, the Federal Reserve will release the minutes from its June 16-17 meeting. Investors will closely scrutinize details of policymakers' discussions on the inflation outlook, labor market conditions, and external risks, including geopolitics. The minutes may provide crucial signals on several fronts.
These include whether policymakers view recent energy price increases as "transitory" factors, if there is a tendency to revise upward their assessment of the "neutral rate" level, and the degree of internal divergence among committee members regarding the timing of rate hikes.
Any hawkish-leaning language could push the US dollar further upward, putting the euro at risk of breaking below the 1.1400 level. Conversely, if the minutes adopt a cautious tone or emphasize "data dependence," the euro may find a temporary respite.
Institutional Views
In early July 2026, Goldman Sachs revised down its forecasts for the euro, noting that the US dollar's near-term strength could persist and a broad-based dollar weakness is unlikely to emerge soon. The bank adjusted its 3-month, 6-month, and 12-month targets to approximately 1.14, 1.12, and 1.12 respectively, down from previous higher levels.
This revision is primarily due to a "dual economic shock"—the AI boom and energy supply issues—which has enhanced the attractiveness of US assets and shifted expectations for the Fed's neutral interest rate higher.
Goldman Sachs stated that while the euro performed strongly and led a rebound in 2025, entering 2026, the US dollar has found support from unique US growth drivers, namely AI-related capital expenditure and inflation.
Signs of a recovery in European economic growth exist, such as fiscal spending in Germany, but they remain relatively weak compared to the US. Furthermore, pressure from energy prices and political uncertainty are weighing on the euro.
The bank emphasized that the US dollar is strong against low-yielding currencies, with mixed performance against high-yielders, but overall, a significant correction in the dollar index is unlikely.
Mitsubishi UFJ Financial Group, in its July 2026 outlook, expressed a moderately bullish stance on the euro, forecasting a level around 1.16 for Q3, 1.18 for Q4, and a rise to 1.20 in Q1 2027, where it is expected to stabilize.
The bank believes that after benefiting from interest rate differentials and supportive US data in the short term, the US dollar will gradually face headwinds. Meanwhile, policy stability and a relative recovery in the Eurozone will provide support for the euro.
Technical Analysis
On the daily chart, the euro has been in a medium-term downtrend since the previous high of 1.1796. The price has continued to oscillate lower, entering a period of low-level consolidation and recovery after touching a low of 1.1324.
The moving average system shows a clear bearish configuration, with the short-term MA20 (1.1451), MA50, and MA100 pointing downward. The price remains under pressure below the 20-day moving average. The medium-to-long-term downtrend has not reversed, with only the MA200 forming a distant strong resistance overhead.
On the indicator front, the MACD is below the zero line. The DIFF line (-0.0046) has slightly crossed above the DEA line (-0.0053), forming a low-level golden cross, with faint red bars appearing. Bearish momentum continues to contract, suggesting potential for a short-term corrective rebound.
The RSI lines are showing a mild recovery from oversold territory. The current RSI1 reading is 40.86, not yet reaching the overbought zone of 70, indicating there is still some room for a short-term rebound to extend slightly higher.
As of 10:23 Beijing time on July 8, the euro was trading at 1.1409/10 against the US dollar.
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