EUR/USD Price Holds 1.17 Ahead of CPI and ECB, Dollar Gains on Safe-Haven Flows

EUR/USD Under Pressure as Geopolitical Escalations and Inflation Data Drive Dollar Flows

The EUR/USD pair is struggling to hold ground above 1.1700 after retreating from a recent peak at 1.1780, reflecting renewed safe-haven demand for the dollar and persistent political instability across Europe. Reports that Israel targeted Hamas leaders in Qatar and that Russian drones were downed in Polish airspace have reinforced defensive positioning in the greenback, while France faces fresh uncertainty following the resignation of its Prime Minister. The combination of geopolitical turmoil and Eurozone political fragility has tilted flows toward the U.S. dollar ahead of crucial inflation data.

Fed Easing Expectations and U.S. Inflation Data in Focus

The Federal Reserve meeting on September 17 remains the central catalyst for markets, with Fed funds futures pricing in a 93% probability of a 25-basis-point cut, up from 86% last week, after the Bureau of Labor Statistics revised U.S. job growth down by 911,000 positions over the past year. This weaker labor market backdrop strengthens the dovish case, but inflation releases will determine the scale of easing. The Producer Price Index showed a 0.1% month-over-month decline in August, compared with expectations of a 0.3% gain, bringing annualized PPI down to 2.6% from 3.3%. Core PPI also eased to 2.8% year-over-year from 3.7%. Traders are now awaiting Thursday’s Consumer Price Index, projected to rise 0.3% monthly and 2.9% annually, with the core reading holding steady at 3.1%.

ECB Stays in Holding Pattern as Euro Weakens

The European Central Bank is widely expected to keep its main refinancing rate unchanged at 2.15% on Thursday after a series of cuts earlier in 2025. Eurozone inflation has eased toward the ECB’s 2% target, and wage pressures are cooling, prompting speculation that the easing cycle may be near its end. The ECB’s cautious tone stands in contrast with the Fed, where markets expect at least two rate cuts by year-end. This divergence in policy trajectory amplifies pressure on the euro, particularly with markets digesting risks of a prolonged conflict on Europe’s eastern flank.

Technical Analysis Shows EUR/USD at Inflection Point

On the technical side, EUR/USD has slipped back into consolidation after a false breakout above 1.1720. Price action is caught between resistance at 1.1775—the 2025 high-week close—and layered support at 1.1680–1.1650. The 30-SMA has turned into overhead resistance, and the RSI near 43 signals weakening momentum. A break below 1.1650 could expose 1.1630 and potentially 1.1586, the July low-week close, while a recovery above 1.1720 would allow bulls to retest the July 24 high at 1.1790 and the longer-term resistance zone at 1.1830–1.1917. Weekly charts highlight a contractionary range between 1.1586 and 1.1775, with a decisive breakout needed to set direction.

Dollar Index Dynamics and Cross-Market Implications

The U.S. Dollar Index (DXY) trades near 97.70–97.80, recovering from earlier weakness but still capped by the 98.10 zone, where the 200-EMA acts as resistance. Safe-haven demand tied to geopolitical tensions and trade risks has kept the dollar resilient despite expectations for monetary easing. Political headwinds in Washington, including challenges to Fed independence and escalating trade rhetoric with the EU, add to volatility but have not derailed the dollar’s defensive bid.

Geopolitical and Trade Risks Weigh on the Euro

Beyond monetary policy, political instability in Europe weighs heavily on the single currency. France’s leadership shake-up has raised questions about policy continuity at a fragile moment for the EU. At the same time, escalating trade rhetoric from Washington—where President Trump has pressed for 100% tariffs on Chinese and Indian imports—poses secondary risks to European exporters. Meanwhile, the drone incident in Poland highlights NATO’s proximity to the Ukraine conflict, a persistent overhang for euro sentiment.

Outlook: EUR/USD Remains a Sell on Rallies While Fed-Easing Trade Plays Out

The macro and technical setup suggests EUR/USD is vulnerable to further downside pressure unless U.S. inflation data materially underperforms and forces a more aggressive Fed response. The euro remains under political stress, the ECB is holding steady, and the dollar retains safe-haven appeal amid geopolitical flashpoints. With resistance entrenched at 1.1775–1.1790 and downside risks extending toward 1.1580, the pair is tactically a Sell on rallies, with conviction depending on CPI and ECB outcomes.

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