EUR/USD held close to 1.1533 in early European trading on August 4 after climbing 1.60% over the previous five sessions, one of the euro’s strongest weekly advances of the year. The move came as the U.S. dollar index slipped to 99.72 and markets reassessed the likely policy paths of the Federal Reserve and the European Central Bank.
The immediate backdrop was a drop in geopolitical risk after planned U.S. strikes on Iran were called off and talks were set to begin. That shift pushed West Texas Intermediate down 6.21% to $79.41 and Brent lower by 5.11% to $83.24, reducing inflation pressure just as investors were pricing additional tightening from the ECB.
For currency markets, the result was a tug-of-war: softer dollar sentiment lifted EUR/USD, while lower oil prices reduced one of the main arguments for more aggressive eurozone rate hikes. That tension helps explain why the pair stalled below technical resistance near its 100-day moving average.
Key Facts
- EUR/USD traded around 1.1533 after closing at 1.1528 on August 1, leaving the pair nearly flat on the day.
- The pair rose 1.60% from the prior week’s 1.1368 close and reached an intraday high of 1.1558.
- The U.S. dollar index fell to 99.7210, extending its one-month decline to 1.13%.
- West Texas Intermediate crude dropped 6.21% to $79.41, while Brent fell 5.11% to $83.24.
- Markets were pricing roughly a 64.5% probability of a Fed rate hike in September, while a September ECB move remained largely priced in.
EUR/USD Outlook
The latest EUR/USD rebound appears to be driven more by broad dollar weakness than by a decisive improvement in the euro’s fundamental story. Over the past month, the euro gained 0.70%, but the dollar index fell more sharply, showing that the move is tied to a wider unwind in long-dollar positions across major currencies rather than to strong euro-specific demand.
That distinction matters for investors. The euro makes up 57.6% of the dollar index, so any broad retreat in the greenback mechanically pushes EUR/USD higher. In recent sessions, that effect was amplified by a sharp move in USD/JPY, where the yen strengthened abruptly and forced leverage-sensitive traders to reduce dollar exposure across the G10 complex.
At the same time, the euro’s own support is less straightforward. Eurozone second-quarter GDP expanded 0.4%, beating the 0.2% consensus and offering evidence that growth has been more resilient than expected. July inflation also accelerated to 2.9% from 2.8%, reinforcing the market view that the ECB may still need to tighten further. But the decline in crude prices weakens that inflation narrative, because energy has been a major driver of the recent repricing in ECB expectations.
The euro is rising mainly because the dollar has lost momentum, not because the eurozone has resolved its own policy and growth challenges.
Why the 100-Day Moving Average Matters
From a market structure perspective, the rally has encountered a familiar obstacle. EUR/USD reached 1.1558 but failed to break above the 100-day simple moving average near 1.1569. That level has capped rebounds since June and remains the clearest technical barrier for bulls.
Support is clustered around 1.1530, with stronger backing lower near 1.1477 and the 1.1430 area. A daily close above the 1.1569 to 1.1570 zone would improve the short-term picture and could open the way toward 1.1600 and beyond. If the pair falls back below 1.1500, the recent advance would look more like a positioning squeeze than the start of a broader trend reversal.
Implications for Investors
For investors, the central question is whether narrowing rate differentials can sustainably lift EUR/USD. The Fed’s target range remains at 3.50% to 3.75%, while the ECB’s key rate sits at 2.25%, leaving a meaningful policy gap in the dollar’s favor. Even if the ECB raises rates again in September, the spread would only narrow modestly unless the Fed shifts to a less hawkish stance.
That is why upcoming U.S. data may matter more than most eurozone releases in the near term. Softer inflation and weaker growth data in the United States have already reduced confidence in a firm Fed tightening path, even with September hike odds still near 64.5%. If labor-market or services data weaken further, the dollar could remain under pressure and EUR/USD could test higher resistance levels despite mixed eurozone fundamentals.
Investors should also watch energy markets closely. The ECB’s recent repricing has been heavily influenced by the inflation impact of higher oil prices. If Brent remains under pressure after falling to $83.24, expectations for further ECB tightening could cool, limiting upside for the euro. Conversely, renewed energy volatility would likely put inflation and policy expectations back at the center of the trade.
In practical terms, EUR/USD now sits at a crossroads between changing monetary expectations and technical resistance. The pair’s ability to hold above 1.1500 and break the 100-day moving average will likely depend on whether the dollar index can defend support near 99.30 and whether incoming U.S. data keep September Fed odds near a coin flip rather than a certainty.
The near-term bias remains constructive while EUR/USD stays above key support, but the next decisive move will likely come from policy expectations rather than headlines alone. Investors should monitor U.S. payrolls, eurozone retail data, oil prices, and central bank communication for confirmation of whether this is the start of a larger trend or only a temporary dollar correction.