EUR/USD Could Break 1.1500 if US CPI Remains Hot

• EUR/USD remains under pressure as stronger US dollar and Fed tightening expectations dominate sentiment.
• US CPI and ECB rate decisions could drive significant volatility in currency markets.
• Rising oil prices and Middle East tensions continue creating headwinds for the euro.

The has spent the last couple of days consolidating in a tight range, following last week’s surge in the US dollar. At the start of this week, there was some further upside for the greenback initially, and that caused the EUR/USD to fall to 1.15 handle, before the pair started bouncing back modestly.

The euro initially fell further as extended their gains on a fresh escalation in the Middle East conflict. However, the selling of the euro has eased slightly since, with traders still hopeful that there might be a deal to reopen the strait, even if the fresh escalation argues against that.

Looking ahead, US is due later today, and the ECB’s rate decision is on Thursday, where the central bank is likely to maintain a firm tone despite growth concerns. The EUR USD exchange rate came under heavy pressure at the end of last week, reflecting the broad-based strength of the greenback. But we could see some euro-specific movements this week if the ECB turns out to be more hawkish or dovish than markets are expecting.

US Dollar Looking to Advance Gains With CPI in Focus

Last week, the greenback rallied after a much stronger-than-expected labour market report prompted investors to reassess the outlook for Federal Reserve policy, sending yields higher. Looking ahead, we have US CPI and ECB rate decisions looming on the economic calendar this week.

Traders are also watching oil prices and the US-Iran-Israel situation. Hopes for a potential deal between the US and Iran to open the Strait of Hormuz faded after the latest escalation in the conflict. But with oil prices turning red on the week and still holding in the existing ranges, markets are still betting that the strait will reopen soon.

The US dollar gained strong momentum last week as investors increasingly factored in the possibility of tighter monetary policy, while the sell-off in stocks also reinforced demand for the greenback. Expectations of tighter monetary policy gained ground on the back of a strong US jobs report, which pointed to a labour market that has regained momentum during the first half of 2026, reducing concerns about an imminent slowdown in economic activity.

Traders have now fully priced in a quarter-point Federal Reserve by year-end, a notable shift from expectations just a few weeks ago.

This week’s US inflation releases could reinforce that view, starting with CPI today and on Thursday. Consensus forecasts suggest headline CPI may move to 4.2% year-on-year in May, while producer price pressures remain elevated. With the Federal Reserve entering its pre-meeting blackout period ahead of the June FOMC decision, policymakers have limited ability to push back against increasingly hawkish market pricing.

As a result, the US dollar may continue to attract support heading into the meeting, particularly as investors anticipate the Fed could adopt a firmer policy stance and further distance itself from any perception of easing.

Keep an Eye on Equity Markets

The US dollar could find fresh haven flows if we see further selling in the tech space, following the sizeable drop in recent days. While the upcoming SpaceX IPO might bring out the bulls again, currencies with strong links to global sentiment may remain particularly vulnerable if weakness in the sector persists. Meanwhile, geopolitical developments continue to underpin safe-haven demand for the greenback.

That said, and despite the escalation of direct hostilities between Iran, the US, and Israel, oil prices have remained relatively contained.

What to Expect From the ECB?

The European Central Bank is widely expected to raise its deposit rate by 25 basis points to 2.25%. More important than the rate move itself will be the tone of the accompanying guidance.

A relatively hawkish message remains the most likely outcome. Policymakers are expected to leave the door open to further tightening later in the year amid the energy market uncertainty.

The challenge for the ECB is that growth indicators are beginning to soften, all thanks to the developments in the Gulf. At the same time, the high energy prices complicate the inflation outlook. This combination of slowing growth and persistent price pressures may leave the EUR/USD struggling to gain bullish traction.

Technical Analysis and Levels to Watch on EUR/USD

The EUR/USD is likely to remain under pressure, despite its small bounce back so far this week. For now, the 1.1500 level has held firm. This will continue to act as a key battleground this week. A sustained move away from here may prove difficult while markets remain focused on the prospect of further Fed tightening.

But with the prior bullish price action failing to lead to any bullish breakthrough, the risks remain tilted to the downside. A clean breakdown below 1.1500 would bring the March low of 1.1410 into focus, barring a plunge in oil prices – say as a result of a deal between the US and Iran to re-open the Strait of Hormuz. Resistance is now seen around the 1.1570-1.1600 area, followed by 1.1670 and then 1.1700.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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