EUR/USD has broken below the key 1.1400 support level as fading hopes for a US-Iran deal push the dollar higher. Strong US data and rising Treasury yields have added to the pair's downside pressure, while the euro side of the equation has stayed largely unchanged.
Dollar strengthens as Iran deal hopes fade
EUR/USD broke below the key support zone around the 1.1400 handle, opening the door for a move into new lows. The US dollar had come under pressure earlier last week as oil prices fell on expectations of de-escalation in the Middle East ahead of the UN General Assembly.
But those expectations faded after Trump reiterated at the assembly that the US would make a deal with Iran only after the November elections, reducing optimism over a near-term resolution and pushing oil prices back up. Hopes briefly returned over the weekend after Iran proposed reopening the Strait of Hormuz within seven days under certain conditions, but Trump rejected the proposal on Saturday and said he expected to resume bombing Iran after the midterms.
On Wednesday, strong US flash PMI data triggered a fresh hawkish repricing in interest rate expectations, sending Treasury yields to new highs and lifting the odds of an October rate hike to 65%. The dollar opened this week firmer as risk-off sentiment dominated the Asian session, with crude oil and yields erasing part of Friday's losses.
Euro side stays anchored to ECB path
On the euro side, little has changed since the European Central Bank delivered a 25 basis-point rate hike at its last meeting, taking the deposit rate to 2.50% as expected. The more hawkish signal came from the ECB's inflation outlook, with policymakers now seeing headline inflation at 3.0% in 2026 and 2.5% in 2027 amid concerns that Middle East-driven energy costs could keep price pressures elevated.
ECB sources indicated policymakers are already discussing another hike as early as October if energy prices stay elevated, though Christine Lagarde stopped short of pre-committing to that timeline, stressing a data-dependent approach. Friday's Eurozone flash CPI print could help determine that decision; markets currently price roughly a 38% chance of an October hike.
What comes next
The technical picture shows sellers eyeing the 1.1100 handle after the break, with buyers needing a recovery above 1.1400 to open the door for a correction toward the 1.1550 trendline. This week brings several catalysts: US consumer confidence and job openings data, the US ADP report and PCE price index, US ISM manufacturing PMI and jobless claims, and finally the Eurozone flash CPI alongside the US non-farm payrolls report on Friday.
Source: Investinglive
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