EUR/USD Spikes Toward 1.1620 as Ceasefire and Fed Uncertainty Drive Rally

EUR/USD Surges to Multi-Month High on Geopolitical Easing and Dovish Fed Shift

Ceasefire Drives EUR/USD Higher as Oil Retreats and Dollar Sheds Gains

EUR/USD rebounded sharply, reaching as high as 1.1620, after U.S. President Trump announced a temporary ceasefire between Israel and Iran. The euro rallied 1.3% off Monday’s lows, driven by a sell-off in crude oil and the U.S. Dollar Index (DXY), which dropped to 98.00. This renewed risk-on sentiment pushed traders back into euro positions, despite a fragile geopolitical landscape.

Brent crude briefly pierced above $80 a barrel before plunging 6.2% to $75.10, taking the dollar with it. The Eurozone, being a net oil importer, tends to benefit from falling energy costs, which reduce inflationary pressure. Traders saw an opportunity to rotate back into European currencies amid waning safe-haven flows.

The German IFO Expectations Index climbed to 90.7, up from 88.9, signaling a potential rebound in Eurozone sentiment. The euro’s reaction reflects a broader unwind of geopolitical risk premium built over the prior two weeks of Middle East conflict.

Powell's Testimony and Inflation Data Add Fuel to Volatility

Federal Reserve Chair Jerome Powell is set to testify before Congress today, and markets are on edge. Last week’s FOMC dot plot showed division among policymakers, with a growing faction projecting no rate cuts in 2025. However, dovish commentary from officials like Michelle Bowman and Christopher Waller suggests internal conflict remains.

Core PCE inflation, due Friday, is expected at 3.1%. A surprise reading could jolt rate expectations. For EUR/USD, dovish language or weaker inflation data could extend the rally toward the 1.1700 handle, while hawkish signals might stall the upward move.

Technical Outlook: Bulls Aim for 1.1700, But Overextension Looms

The EUR/USD pair has broken above the April high of 1.1573 and now approaches resistance at 1.1631. The round-number level of 1.1700 remains in focus for bullish continuation. The 14-day RSI is near 65, just short of overbought territory, while MACD remains in positive territory but is showing a narrowing histogram, indicating slowing momentum.

Support is layered at 1.1581, 1.1537, and 1.1512, which align with key Fibonacci retracement levels. A breakdown below 1.1530 could open the path toward the deeper 1.1450 and 1.1280 zones. The 50-period EMA, rising from 1.1534, adds additional short-term support.

Mixed PMI and Inflation Prints Complicate Eurozone Policy Expectations

Preliminary PMI data out of Europe came in mixed, initially capping gains for the euro. However, strong U.S. PMIs later in the day failed to lift the dollar, suggesting that geopolitical relief is temporarily overshadowing macro divergence.

Later this week, flash CPI readings from France and Spain will clarify Eurozone inflation dynamics. These will influence ECB President Lagarde's tone, especially with traders now leaning toward a policy hold in July after earlier pricing in a cut.

Trading Positioning: Bulls in Control, But Market Watches Ceasefire Stability

After surging to 1.1660, the pair is consolidating just below resistance. A clear breakout above 1.1632 could target 1.1706, while a double-top near 1.1620 may trigger short-term profit-taking. MACD signals remain bullish but fade slightly, reinforcing the need for confirmation via volume and pattern breakout.

Traders are advised to monitor German IFO Climate readings, ECB commentary, and the Consumer Confidence Index from the U.S. today. The ceasefire's fragility is still in play, especially after accusations from Israeli officials that Iran violated the truce, despite Tehran’s denials. This conflict may reintroduce volatility, reinforcing the importance of disciplined technical levels.

Trade Setups and Entry Zones for EUR/USD

Aggressive long entries may be considered on a confirmed 2-hour close above 1.1620, targeting 1.1649 and 1.1706, with stops below 1.1530. Alternatively, a pullback into the 1.1537–1.1557 region with a bullish reversal candle provides a favorable risk-reward structure. Bearish setups activate only on a clean break of 1.1450.

Overall, EUR/USD has reasserted bullish control in the short term, but its next leg depends on Powell's tone, inflation data, and whether this ceasefire truly holds beyond headlines. Traders should stay nimble, technical, and alert to fresh cross-asset flows emerging from oil, Treasuries, and the DXY.

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