European Currencies Decline Amid Rising Geopolitical Risks

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European currencies are moving into a corrective decline after recent attempts to hold above key levels, with the current move driven by escalating geopolitical tensions and stronger demand for safe-haven assets. The partial closure of the Strait of Hormuz and renewed escalation in the Middle East are weighing on risk assets, supporting the US dollar through capital flows into more liquid instruments and limiting upside potential for both the euro and the pound. Higher energy prices are adding further pressure by increasing inflation risks for the European economy.

At the same time, markets remain cautious ahead of upcoming macroeconomic releases from the US, as well as data from the euro area and the UK. Anticipation of fresh signals on inflation and economic activity is restraining directional moves and increasing the likelihood of tests of key levels amid a mixed fundamental backdrop.

EUR/USD

As expected, EUR/USD retested the 1.1800–1.1830 resistance zone but failed to establish a foothold above it. Technical analysis points to the potential for a continued downward correction, with reversal signals forming on the daily timeframe. However, a weaker dollar or an improvement in global risk sentiment could trigger a renewed bullish move towards 1.1830–1.1850.

Key events for EUR/USD:

  • today at 13:00 (GMT+3): Bundesbank monthly report
  • today at 17:30 (GMT+3): US crude oil inventories
  • today at 20:00 (GMT+3): speech by Bundesbank President Nagel

GBP/USD

GBP/USD is also declining and approaching important support levels, reflecting broader pressure on European currencies. Technical analysis suggests a potential retest of 1.3470 and, if broken lower, a move towards 1.3380–1.3430. The bearish scenario could be invalidated by a sustained move above 1.3550.

Key events for GBP/USD:

  • today at 09:00 (GMT+3): UK Consumer Price Index
  • today at 11:05 (GMT+3): speech by Sarah Breeden (BoE)
  • today at 11:30 (GMT+3): UK house price index

The currency market remains in a phase of elevated uncertainty, where a combination of geopolitical developments and macroeconomic expectations is driving subdued price action. In the near term, the news flow will remain the key driver, with the potential either to intensify pressure on European currencies or to trigger short-term corrective rebounds.