Euro sits near multi-month top vs weak USD as bulls await move beyond 1.1700 ahead of PMIs

• EUR/USD remains well supported by a weaker USD and firming ECB rate hike expectations.
• Inflation risks due to higher oil prices keep Fed rate hike bets on the table and support USD.
• Geopolitical uncertainties further help limit USD losses and cap the pair ahead of flash PMIs.

The EUR/USD pair attracts some dip-buyers during the Asian session on Friday and climbs back closer to its highest level since May 14, set the previous day, with bulls now awaiting a move beyond the 1.1700 mark before placing fresh bets. Nevertheless, spot prices remain on track to register strong weekly gains and prolong the month-to-date uptrend amid a broadly weaker US Dollar (USD).

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, remains depressed near a three-month low as traders continue scaling back bets for an immediate Federal Reserve (Fed) rate hike amid signs of cooling inflation. Adding to this, expectations that energy-driven inflation would force the European Central Bank (ECB) to lean toward a more hawkish stance underpin the shared currency and the EUR/USD pair.

According to Commerzbank, the increasingly tight balance in European gas storage “increases the pressure to import even more in the coming months, thereby raising the price risk.” The bank cautions that if gas inflows fail to recover sufficiently, “this would also further increase upward pressure on European electricity prices,” as the region is forced to compete more aggressively for scarce LNG supplies.

Meanwhile, the immediate market reaction to the US Treasury Department's plan to double the size of some long-dated debt buyback operations seems to be fading amid inflation risks stemming from higher energy prices. Furthermore, hawkish FOMC Minutes, released on Wednesday, keep bets for at least one interest rate hike in 2026 on the table and remain supportive of elevated US bond yields, which could support the USD.

Adding to this, the US-Iran standoff over the Strait of Hormuz keeps the geopolitical risk premium in play and could further help limit losses for the safe-haven Greenback. In further developments surrounding the Middle East crisis, President Donald Trump threatened economic warfare against Iran and isolation on an unprecedented scale, while warning of economic consequences for any country that provided any type of lifeline to Iran.

This might hold back USD bears from placing fresh bets and cap the EUR/USD pair. Traders now look forward to the release of flash PMIs from the Eurozone and the US for a fresh impetus. Moreover, the incoming geopolitical headlines might continue to infuse volatility across global financial markets, which will drive demand for the safe-haven USD and produce short-term trading opportunities around the EUR/USD pair on the last day of the week.

EUR/USD daily chart

Technical Analysis

The EUR/USD pair holds a bullish near-term bias above the 200-day Simple Moving Average (SMA) and the 61.8% Fibonacci retracement of the April-June decline, at 1.1644. This suggests that dips are likely to attract buying while the broader recovery off the 1.1323 cycle low stays intact and could aim to test the 78.6% retracement at 1.1731.

This is followed by the April swing high near 1.1843. On the downside, initial support is seen at the 61.8% retracement at 1.1644 and the 200-day SMA at 1.1631, ahead of deeper Fibonacci levels at 1.1583 and 1.1521, with stronger structural demand emerging toward the 23.6% retracement at 1.1445 and the 1.1323 anchor.

(The technical analysis of this story was written with the help of an AI tool. Know more.)