EUR/USD Price Forecast: Euro Slides Below 1.1700 as Yields Hit 4.48%, Fed Hike Odds Climb to 36%

EUR/USD is changing hands at 1.17128 on Wednesday, May 13, 2026, with the pair extending its losing streak to a third consecutive session and slicing decisively beneath the psychological 1.1700 line. The intraday low has touched the 1.1680 to 1.1700 contention zone, the 1.17363 print from earlier in the morning has been steadily eroded, and the broader move tracks a 0.35% decline on the session against the dollar. The pair is now sitting at multi-day lows with the technical bias rotating from constructive to defensive in real-time as the U.S. inflation backdrop reasserts dollar dominance across the entire G10 complex. The euro has effectively retraced the upper half of the parallel rising channel that defined the prior two-week recovery, and the 1.1715 region — corresponding to ascending channel support — is the first line of defense before the 200-period Simple Moving Average at 1.1692 comes into play as the structural floor. The price action over the past forty-eight hours has been driven almost entirely by two interlocking forces — hotter-than-expected U.S. inflation data and a fresh leg higher in oil prices tied to the Iran war — and the combination is producing one of the cleanest dollar-bullish setups across foreign exchange markets in months. The cross-currency map confirms the breadth of the move, with the dollar gaining 0.12% against the euro, 0.16% against sterling, 0.69% against the yen, 0.11% against the Canadian dollar, and 0.35% against the Swiss franc on a weekly basis, while losing 0.15% against the Australian dollar and 0.03% against the New Zealand dollar.

The Producer Price Shock Is the Single Largest Trigger

The April Producer Price Index released Wednesday morning has effectively rewritten the U.S. rate path. The headline print jumped 1.4% month-on-month against a 0.5% consensus, marking the largest single-month wholesale inflation gain since March 2022. On a twelve-month basis the index now sits at 6%, against a 4.8% Street forecast and the hottest annual reading since December 2022. The core PPI reading came in at 1% month-on-month against a 0.3% expectation. The April Consumer Price Index print released Tuesday set the table by accelerating to 3.8% year-on-year from 3.3% in March, marking the highest annual reading since May 2023. The sequencing of the two prints — consumer prices on Tuesday, producer prices on Wednesday — has produced a one-two combination that has fundamentally repriced the trajectory of Federal Reserve policy. Service-sector inflation in particular is accelerating, which is the most dangerous component of any inflation reset because it tends to be considerably stickier than goods-sector inflation. The dovish argument that prices are not rising and that tariffs are therefore not feeding inflation is now genuinely difficult to defend given the data.

Rate-Cut Probabilities Have Effectively Collapsed

The futures market has now raised the probability of a federal funds rate hike in 2026 to 36%, with expectations for that move shifting from April to March 2027. CME Group FedWatch positioning shows the probability of a June rate cut to 3.25% to 3.50% sitting at just 4.2%, while 95.8% of participants now expect the Fed to remain unchanged in the 3.50% to 3.75% band. The yield spread between Treasuries and TIPS — the cleanest gauge of market-implied inflation expectations — has climbed to 2.7% over a five-year horizon, the highest level since 2022. The 10-year Treasury yield has punched to 4.48%, a ten-month high, while the 2-year yield has stabilized at 3.994%. The bond market reaction tells a precise story — the long end is repricing inflation persistence while the front end is holding steady on the absence of additional tightening expectations, producing a steepening curve that is mechanically bullish for the dollar against any currency without an equivalent rate-differential story. This combination of rising long-end yields, persistent inflation expectations, and effectively eliminated rate-cut probability is the textbook setup for sustained dollar strength against the euro, particularly given the European Central Bank's relatively cautious posture on policy normalization.

Technical Structure on the 4-Hour Chart

EUR/USD has spent the past two weeks climbing along an upward-sloping channel, with spot prices holding above the 200-period Simple Moving Average and maintaining a modestly constructive near-term tone through last Friday's close. That structural setup is now under direct threat. The Relative Strength Index has eased toward the mid-40s on the 4-hour timeframe, retreating from the upper-50s range that defined the rally phase. The Moving Average Convergence Divergence has slipped slightly below zero with the histogram turning negative, signaling that upside traction is genuinely losing strength even as the broader trend channel still technically holds. A sustained break below the ascending channel support near 1.1715, combined with acceptance below the 200-period SMA at 1.1692, would weaken the current constructive bias and expose deeper retracements within the broader range. The downside target sequence from there runs through 1.1680 to 1.1660 as the first meaningful support zone where moderate buying interest may emerge, with 1.1620 to 1.1600 as the next downside magnet if 1.1660 cracks on a daily close. On the topside, initial resistance sits at the upper boundary of the parallel channel near 1.1830, with a convincing breakout through that barrier required to reopen the path toward 1.1875 and the prior monthly highs. The fact that the bulls failed to clear 1.1800 in the prior session is itself a meaningful technical signal — when an obvious resistance level holds on the third or fourth attempt, the probability of a downside resolution accelerates materially.

Implied Volatility Compression and Range-Bound Dynamics

ING's Chris Turner has flagged that EUR/USD three-month implied volatility is now trading at 5.7%, more than 1% below realized volatility and not far from the 5.2% to 5.3% lower end of the range seen over the past five years. The relatively flat risk reversal — measuring the price of a euro call against an equivalent euro put — confirms that the options market is not pricing aggressive directional positioning in either direction. The conclusion that follows is more range-bound EUR/USD trading rather than a clean trend, with strong buying interest expected around 1.1650 and downside risk skewed toward that level over the coming sessions given slightly greater upside risks to oil. That structural read aligns with the broader pattern — the pair is being capped by dollar strength on the upside while being supported by ECB rate-hike speculation on the downside, producing a compressed range that historically resolves with a volatility expansion rather than continued chop.

The Trump-Xi Beijing Summit Sitting on the Tape

Currency markets are genuinely waiting on the outcome of President Trump's two-day meeting with Chinese President Xi Jinping. Trump is likely to seek Xi's diplomatic backing to resolve the Iran stalemate, which could force him to soften demands on trade. Xi is expected to push Taiwan's status onto the agenda in return. The result of those bilateral negotiations will set the directional bias for not just EUR/USD but for the entire FX complex through the back half of this week. A summit outcome producing meaningful U.S.-China cooperation — particularly anything that softens the Iran posture — would temporarily ease the safe-haven bid in the dollar and provide relief to the euro. A summit ending in stalemate or fresh trade friction would reinforce dollar dominance and accelerate the EUR/USD breakdown. The presence of the largest American technology, finance, and industrial CEOs in Beijing simultaneously — Musk, Cook, Fink, Ortberg, Sikes, Fraser, and the late-add pair of Huang and the Qualcomm chief — raises the probability of a binary news catalyst within a forty-eight-hour window that could move FX markets meaningfully in either direction.

The Iran War and the Oil-Currency Feedback Loop

The U.S. naval blockade of Iran's Strait of Hormuz remains in place, with Trump stating that the blockade will continue until a nuclear agreement is reached. The diminishing odds for a U.S.-Iran peace deal, amid disagreements over Tehran's nuclear program and the Strait of Hormuz, continue to underpin the dollar and act as a sustained headwind for EUR/USD. Trump's recent characterization of the ceasefire as being on "massive life support" has unsettled markets and supported the greenback. The Project Freedom operation has reignited Hormuz tensions, with U.S. Energy Information Administration estimates projecting a reduction of 2.6 million barrels per day in global oil stockpiles by 2026 assuming the Strait reopens by the end of May — a forecast significantly higher than the previous 300,000 barrels per day estimate. Brent crude has been trading in the $99 to $107 range, while West Texas Intermediate sits in the $101 to $103 band. The mechanical relationship between rising oil and currency markets is straightforward — Europe is a net energy importer while the U.S. has effectively become a net exporter through shale production, which means every dollar of crude appreciation accrues to the U.S. terms-of-trade balance while widening the European trade deficit. That is the structural reason why oil rallies translate directly into EUR/USD weakness, and it is the reason why ING expects the pair to drift lower over the coming sessions given slightly greater upside risks to crude.

The Eurozone Side of the Equation

The European Central Bank has maintained a notably restrained approach to policy easing relative to the Federal Reserve's stop-start pattern. Inflation in the eurozone is gradually stabilizing near target levels, and the market is no longer expecting aggressive rate cuts from the ECB in the coming months — which has been the single most important factor preventing a faster collapse in the EUR/USD pair despite the U.S. inflation reset. The second release of Q1 2026 eurozone GDP is on the calendar today, expected at 0.1% quarter-on-quarter, with a slate of ECB speakers including Christine Lagarde and Philip Lane scheduled for the evening session. The big speeches from Lagarde and Lane are expected to hold out the prospect of an ECB rate hike in June, and the euro will face immediate selling pressure if those speeches fail to deliver a sufficiently hawkish tone. Weak industrial data in Europe and risks of a slowdown in the German economy remain structural headwinds for the single currency, but the ECB's policy stance has been the floor that has prevented those weaknesses from translating into a faster EUR/USD breakdown. The German political situation remains an ongoing variable, France's political flux has eased recently but Germany's fiscal package debate continues to overhang the euro on a multi-week horizon, and Macquarie has separately warned against buying sterling against the euro on broader political risk premiums building across European currencies.

The Warsh Transition and the Fed's Mandate Crisis

Federal Reserve Chair Jerome Powell hands the gavel to Kevin Warsh on Friday, May 15, after Warsh was confirmed by the Senate in a 51 to 45 vote. MUFG analysts believe Warsh is unlikely to change the status quo despite his presumed dovish leaning — he will push for monetary policy easing, but most Fed officials will remain unreceptive to such calls given the current inflation backdrop. The structural read on the Warsh transition is that it removes near-term clarity from monetary policy at exactly the moment when inflation data is reaccelerating, which historically supports the dollar as a hedge against policy-credibility risk even when nominal yields rise. Four Fed policymakers dissented at the most recent meeting, highlighting a growing policy divide driven by uncertainty linked to the Iran conflict. Warsh inherits a divided Fed with its institutional independence in genuine doubt and a White House that wants rate cuts the data does not support. The combination of a contested chairmanship transition, a politicized rate-cut demand from the Oval Office, and an inflation print that has effectively closed the door on near-term easing creates exactly the institutional uncertainty that traditionally drives capital into the dollar despite — and partly because of — that uncertainty.