EUR/USD Explodes to 45-Month High as Fed Fractures, Dollar Slides

EUR/USD Surges Above 1.17 Amid Fed Rift, Dollar Spiral, and Tariff Anxiety

The EUR/USD pair advanced sharply to 1.1717, up 0.47% in early London trading, as the U.S. dollar crumbled under pressure from mounting Federal Reserve dissent, geopolitical relief, and weakening macro data. This marks the sixth consecutive daily gain for the euro against the dollar, pushing the exchange rate to a 45-month high and exposing technical zones not touched since 2021.

Dollar Index (DXY) Breaks Down as Fed Signals Policy Shift

The U.S. Dollar Index (DXY) is now approaching 97.00—a 39-month low—driven by increasingly dovish rhetoric from key Fed officials. Fed Governor Christopher Waller warned against waiting for a labor crash before initiating cuts, while Governor Michelle Bowman signaled openness to slashing rates as early as July. Market expectations have now priced in a 25–50 basis point cut before Q4 2025. Political pressure is intensifying after reports that President Trump may replace Chair Powell ahead of his May 2026 term end, casting Powell as a lame duck. With the Fed’s inflation fight taking a backseat to employment stability and rising political interference, treasury yields are sliding—and with them, the dollar.

Geopolitical Relief Undermines Safe-Haven Flows to USD

The ceasefire between Israel and Iran has pulled defensive capital away from the greenback, further fueling the EUR/USD rally. The Swiss franc and euro have outperformed amid the risk-on tone, with the franc touching its strongest level versus USD since 2011. Despite lingering tension over Iran’s nuclear program and U.S. intelligence leaks, markets are choosing to unwind protectionist positions, reinforcing the euro’s upside.

Technical Momentum Points to 1.1800–1.2000 Test

Technically, EUR/USD breached key resistance at 1.1665 and now targets 1.1800 as the next inflection zone. A Fibonacci band breakout on the 4-hour chart and alignment of SMAs (20/50/100/200) support a bullish outlook. The pair recently touched the upper Bollinger Band—a signal often tied to near-term exhaustion—but with RSI still below the overbought 70 line (currently 65), there’s room for upside continuation. A retreat could see pullbacks to support at 1.1640 or 1.1490 before renewed buying.

EUR/USD Trading Triggers: Jobless Claims, GDP, and PCE in Focus

Three high-impact U.S. economic releases today—Initial Jobless Claims, Continuing Claims, and the Core PCE Index—are expected to determine whether the rally sustains or retraces. If labor market data deteriorates, dovish Fed bets could intensify. The four-week jobless claims average and GDP growth data are due at 08:30 EDT, and economists expect an uptick in unemployment metrics. Durable goods figures and GfK German Consumer Climate data will add to volatility, likely confirming or countering the euro’s dominance.

Rate Cut Bets Intensify as Market Doubts Fed Autonomy

Markets now price in an 85% chance of a Fed rate cut by September. Analysts from ING and ANZ note that tariff-induced inflation could be offset by weak domestic demand and slowing services growth. The July 9 tariff deadline looms, and Trump’s unpredictable posture on trade has raised fears of policy missteps. If the Fed is perceived to bow to political pressure, the dollar could suffer a structural blow. But if Powell manages to preserve independence while navigating toward cuts, downside could moderate.

EUR/USD Fundamentals Show Strong Year-to-Date Gains

The euro has rallied nearly 12% against the dollar YTD, buoyed by macro divergence and monetary tightening exhaustion in the U.S. Unlike the Federal Reserve, the ECB has remained relatively quiet, letting the euro ride on dollar fragility. Eurozone data is sparse, but the lack of negative surprises and tightening expectations from U.S. policymakers have helped EUR/USD reclaim strength. Bollinger and SMA trends suggest structural bullishness.

Trading Strategy: Watch Pullbacks Toward 1.1640 or 1.1490

Active traders are targeting buy zones near the 1.1490 support with upside goals of 1.1720 to 1.1800. On the flip side, if EUR/USD stalls at 1.1800, a return toward 1.1490 could serve as a buying opportunity unless U.S. data drastically beats expectations. Sell-side setups from resistance at 1.1690 remain viable short-term with stops at 1.1800 and profit targets at 1.1400. Overall, RSI and overbought conditions are manageable, but profit-taking is possible.

Buy, Sell, or Hold? EUR/USD Outlook Into Q3

Given the breakdown in Fed cohesion, upcoming political reshuffling, softening labor data, and a crumbling dollar, EUR/USD remains in bullish territory with technical and fundamental backing. The market appears poised to test the psychological 1.2000 mark in Q3 if economic data aligns. However, any stronger-than-expected inflation or sudden hawkish pivot by Powell may cap gains. Until then, the euro holds the advantage.

Verdict: EUR/USD is a Buy on Dips Above 1.1490, Targeting 1.1800–1.2000 into Q3 if Fed Cuts, Dollar Weakness, and Political Risk Persist.

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