The EUR/USD exchange rate pulled back this week following heightened geopolitical tensions in the Middle East, political reshuffling in France, and disappointing US labor market data. At the time of writing, the pair was trading around 1.1705, down slightly from the week’s high of 1.1777.
Market attention now turns to the Federal Reserve (Fed) and the European Central Bank (ECB), whose policies could set the stage for a renewed push toward the key resistance at 1.2000. The Arbitics team presents a structured and insightful breakdown of this matter.
US Dollar Rises Amid Geopolitical Tensions
One of the primary catalysts driving the recent US dollar strength has been geopolitical risk. Over the weekend, Israel launched targeted strikes on Hamas leaders in Qatar, raising fears of a broader conflict in the region. Such developments tend to increase safe-haven demand, lifting the dollar and US Treasuries, while weighing on risk-sensitive assets like the euro.
At the same time, in Europe, political uncertainty deepened after French President Emmanuel Macron appointed Sebastien Lecornu as the new prime minister, replacing Francois Bayrou.
This marks the fifth prime ministerial change in two years, highlighting instability at a sensitive moment for the eurozone. Nonetheless, the Bank of France expressed optimism, forecasting 0.3% GDP growth this quarter, supported by resilient sectors such as aerospace and industrial equipment.
US Jobs Data Weighs on Market Sentiment
In addition to geopolitical concerns, the EUR/USD pair reacted strongly to revised labor market figures from the Bureau of Labor Statistics (BLS). The updated report showed that the economy created 911,000 fewer jobs than initially reported through March, suggesting that the softness in the labor market has been more pronounced than previously thought.
This significant downward revision reinforced the view that the US labor market has lost momentum, fueling expectations that the Federal Reserve will pivot toward interest rate cuts. Traders are now focused on upcoming data releases, including the Producer Price Index (PPI) midweek and the Consumer Price Index (CPI) on Thursday, which could further influence policy expectations.
Diverging Paths: Fed vs. ECB
Monetary policy divergence remains a key theme driving the EUR/USD trajectory. The Federal Reserve is widely expected to cut interest rates at its next meeting, marking a reversal from its aggressive tightening cycle aimed at taming inflation. A rate cut would put downward pressure on the US dollar, especially if inflation data signals further easing.
In contrast, the European Central Bank (ECB) is anticipated to hold rates steady, maintaining a cautious stance amid ongoing inflationary pressures in the eurozone. Even though growth has been uneven, the ECB remains focused on ensuring price stability, creating a potential policy gap between the two central banks.
This divergence could act as a bullish catalyst for EUR/USD, pushing the pair higher toward the psychological resistance of 1.2000 if the Fed signals a more accommodative path while the ECB stays firm.
EUR/USD Technical Analysis
From a technical perspective, the EUR/USD daily chart reflects a consistent bullish structure since January, when the pair bottomed at 1.0180. It advanced steadily to a year-to-date high of 1.1830 in July before retracing to 1.1390, aligning with the top boundary of the Murrey Math Lines trading range.
More recently, the pair has formed an inverse head-and-shoulders pattern, a classic reversal signal, suggesting potential for further upside. The neckline of this formation is currently being retested, with strong support holding above 1.1650.
Additionally, the pair is trading near the ultimate resistance point on the Murrey Math Lines, reinforcing the significance of the current consolidation zone. If bullish momentum prevails, the next key target will be the 1.2000 psychological barrier, a level closely watched by both institutional and retail traders.
Key Levels to Watch
- Immediate Support: 1.1650
- Next Support Zone: 1.1390
- Resistance Levels: 1.1830, followed by 1.2000
- Trend Bias: Bullish above 1.1650
Technical momentum indicators such as the Relative Strength Index (RSI) remain in positive territory, while moving averages confirm the underlying uptrend. A sustained break above 1.1830 would likely open the door toward the 1.2000 milestone.
Outlook: Can EUR/USD Reach 1.200?
The path toward EUR/USD 1.2000 will depend on a combination of macroeconomic data, geopolitical risks, and central bank decisions. A dovish Fed rate cut next week could accelerate dollar weakness, while a steady ECB stance reinforces the euro’s resilience. Meanwhile, escalating tensions in the Middle East or fresh political instability in Europe could trigger short-term volatility.
Overall, as long as the pair holds above 1.1650 support, the bias remains tilted toward the upside. Technical structures, combined with looming monetary divergence, suggest that the EUR/USD forex signal favors a continued push higher, with 1.2000 as the next critical target.
