EUR/USD slides below 1.14 support amid fading US-Iran deal optimism

FUNDAMENTAL OVERVIEW

USD:

The greenback faced some selling pressure early last week, as oil prices tumbled on rising expectations that the conflict would de-escalate and end sooner, particularly ahead of the UN General Assembly.

Those hopes diminished following the assembly, where Trump stated the US would pursue an agreement with Iran following the November elections. His comments dampened hopes for a short-term resolution and helped push oil prices back up.

Additionally, robust US Flash PMI data on Wednesday prompted another repositioning toward hawkish rate expectations, pushing Treasury yields to fresh peaks and lifting the probability of an October rate rise to 65%.

Heading into the weekend, optimism for a US-Iran deal resurfaced after Iran submitted a proposal to reopen the Strait of Hormuz within seven days under specific conditions. However, Trump turned down the offer on Saturday and said he anticipated a resumption of bombing in Iran after the midterm elections.

As was widely expected, the dollar began the week on solid ground, driven by a risk-off mood in Asian trading that saw crude oil and Treasury yields partially reverse Friday's declines.

Attention will stay fixed on the Middle East situation and the Federal Reserve. A diplomatic resolution would be negative for the dollar in the near term, as aggressive rate hike expectations would probably be scaled back. Conversely, a prolonged deadlock or further escalation would likely keep the dollar supported and pushing toward fresh highs.

EUR:

There has been little shift on the euro front. The European Central Bank, as anticipated, raised rates by 25 basis points at its previous meeting, bringing the deposit rate to 2.50%. The hawkish element emerged from the inflation projections and the central bank's rising worry that an energy shock stemming from the Middle East might keep price pressures elevated for an extended period. The ECB's new forecasts put headline inflation at 3.0% in 2026 and 2.5% in 2027, with both the 2027 and 2028 predictions adjusted upward.

Alongside the rate decision came an improved growth outlook; the ECB raised its 2026 and 2027 growth projections, citing the euro-area economy's unexpected resilience. That provides policymakers a bit more leeway to continue tightening even in the face of the inflation shock.

The key development took place after the announcement. According to ECB sources, policymakers are already talking about a further rate increase as soon as October, provided energy costs stay high and inflation risks keep spreading. Lagarde, however, did not commit to an October move, instead emphasizing a data-dependent, meeting-by-meeting stance. As a result, traders will continue to watch economic releases and the Middle East developments closely.

Last week's Flash PMI data pointed to a resilient economy, giving the ECB scope to tighten further if required. Friday will bring the Eurozone Flash CPI, a key piece of data that may determine whether the central bank raises rates in October. Currently, the probability of a rate hike stands at about 38%.

EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME

EUR/USD has fallen through the critical support area near 1.1400. That break has paved the way for a decline toward fresh lows. Sellers are expected to remain active around these levels, with a clear risk above the broken support, aiming for the 1.1100 mark. Buyers, meantime, would need to see the pair climb back above the breached support to set up for a retracement toward the downward trendline around 1.1550.

EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

A descending trendline on the 4-hour timeframe has been dictating the bearish momentum. Sellers are likely to keep using that trendline as resistance, with a stop above it, to drive the pair lower. Buyers, conversely, would want to see a breakout above the trendline and the broken support to allow for a correction toward the trendline, with 1.15 as an initial target.

EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

On the hourly chart, the price has slipped beneath an ascending counter-trendline, typically a sign of further lows ahead. Sellers are expected to step in here, with a stop above the descending trendline, to continue pushing lower. Buyers will hold off until the price moves above the trendline before aiming for new highs.

UPCOMING CATALYSTS

The coming schedule includes the US Consumer Confidence report and Job Openings data tomorrow. Wednesday brings the US ADP employment report and the PCE price index. Thursday features the US ISM Manufacturing PMI and the latest Jobless Claims figures. The week wraps up on Friday with the Eurozone Flash CPI and the US NFP report.