The Euro (EUR) declined below 1.1750 against the US Dollar (USD) on Tuesday, following a failed attempt to break above the 1.1790 resistance area on Monday [1]. This move was driven by a combination of mixed German ZEW Economic Sentiment data and escalating geopolitical risks, particularly concerning the fragility of the US-Iran ceasefire [1][2][3]. The ZEW Economic Sentiment index for Germany improved to -10.2 in May from -17.2 in April, surpassing expectations of -19.8, indicating a less pessimistic outlook among institutional investors. However, the ZEW Current Situation sub-index dropped to a five-month low of -77.8, below the consensus of -77.5 and down from -73.7 in April, highlighting ongoing concerns about the present economic environment [1][4].
Geopolitical developments weighed heavily on market sentiment. US President Donald Trump stated that the US-Iran ceasefire is on 'life support,' and CNN reported that some US officials are seriously considering resuming combat operations, which has increased demand for the safe-haven US Dollar [1][2][3]. The US Dollar Index (DXY) rose 0.35% to around 98.30, reflecting broad-based USD strength against major currencies, including the Euro and British Pound [3][4].
Investors are also focused on the upcoming US Consumer Price Index (CPI) data for April. Consensus expects headline inflation to accelerate to 3.7% year-on-year, with core inflation at 2.7% [1][3]. ING strategists forecast an even higher 0.9% month-on-month headline print, which would take year-on-year inflation to 4.0%, well above the 3.7% consensus, while core CPI is expected at 0.3% month-on-month and 2.7% year-on-year, in line with consensus [2]. ING analysts argue that a hotter-than-expected CPI could reinforce hawkish repricing in the USD swap curve, but note that the Dollar's upside may depend more on equity market reactions and developments in US-Iran relations [2].
Technical analysis shows bearish momentum building for EUR/USD, with the Relative Strength Index (RSI) around 46 and the MACD slipping into negative territory, suggesting waning upside momentum [1]. Key support levels are identified at 1.1725 and in the 1.1645–1.1675 range, while resistance remains at 1.1790–1.1800 and 1.1850 [1]. For EUR/JPY, the pair steadied above 185.00 after the ZEW data, with technicals indicating modest bullish bias but neutral momentum, and immediate support at the 184.90–184.89 area [4].
Across the board, the Euro was the weakest major currency against the US Dollar, declining 0.31% on the day [4]. The British Pound also fell sharply, pressured by both Dollar strength and UK political uncertainty, with GBP/USD down 0.59% to around 1.3530 [3].
Forward-looking commentary from ING suggests that the longer the US-Iran stalemate persists, the greater the upside risks for the US Dollar, both in the near and medium term, due to potential drag on the global economy [2].
CONCLUSION
The Euro's decline below 1.1750 reflects a combination of mixed German sentiment data and heightened geopolitical risks, particularly surrounding the US-Iran ceasefire. With US inflation data and further developments in the Middle East in focus, market sentiment remains risk-averse, supporting the US Dollar. The outlook for the Euro and other major currencies will hinge on upcoming US CPI results and geopolitical headlines.