The euro-dollar pair remains confined to the 1.15 range, demonstrating a kind of "stoic restraint" against the backdrop of major fundamental developments. Traders purposefully ignore even important data releases, as if waiting for that decisive news trigger that will determine the fate of EUR/USD. I believe such behavior is fully justified, considering the unfolding situation around the war in the Middle East. In the coming days (or even hours), one of the most critical geopolitical issues may be resolved: whether Washington will go to war with Iran or attempt to implement a de-escalation scenario. For now, the intrigue persists: "hawks" and "doves" are making their arguments while Donald Trump delivers extremely contradictory messages. In light of such an uncertain landscape, the caution shown by EUR/USD traders seems entirely reasonable.
However, let us begin with Tuesday's key releases, which have been overshadowed by geopolitics. The market ignored the reports, but they may come back into focus once the Middle Eastern conflict is resolved.
During the European trading session, the ZEW indices were released. These typically provoke increased volatility in EUR/USD, especially if they deviate from forecasts. In June, the figures deviated significantly. For example, the German business sentiment index surged to 47.5, while the forecast was 34.8. The index has now been rising for two consecutive months: in April, it was in negative territory (-14.0), then jumped to 25.2 in May, and now to 47.5. The current conditions index in Germany improved to -72 (forecast: -74). While this figure has remained in negative territory for years, "everything is relative": the June result is the best since July last year (when the figure reached -68.9). The Eurozone-wide ZEW business sentiment index also showed positive dynamics, rising to 35 from 23.5 the previous month.
This is a strong fundamental signal in the context of the June European Central Bank meeting, where the central bank either "completed" or "almost completed" its current monetary policy easing cycle. The release increased the chances that a pause in easing will be announced at the next meeting in July. If not for geopolitics, the euro would likely have reacted to the ZEW indices in a much stronger way.
On the other hand, U.S. retail sales data disappointed dollar bulls. All report components were in negative territory and fell short of expectations. The overall volume of retail trade fell by 0.9% in May, while forecasts projected a decline of 0.7%. This is the worst result since February. Retail sales declined (by 0.3%), excluding auto sales, whereas most analysts had expected a slight increase of 0.1%. The import price index was flat, following a 0.1% increase in the previous month.
Again, if not for geopolitics, such mixed reports would have at least allowed EUR/USD buyers to test the 1.1600 resistance level (the upper line of the Bollinger Bands on the D1 timeframe). However, the continuing uncertainty around the escalation or de-escalation of the Middle East conflict weighs on buyers and sellers.
Let's start with the fact that there are currently no signs of de-escalation: Iran and Israel continue to exchange missile strikes and deliver highly belligerent rhetoric. For example, Israel's Defense Minister on Tuesday announced a strike on "very important targets in Tehran and nuclear facilities in Fordow." He emphasized that Israel "is not conducting peace talks with Iran." Meanwhile, Tehran stated that Iranian forces had attacked Israel with a "new-generation missile" and announced further strikes on Israeli targets.
Despite some countries offering mediation efforts, the war continues: it's still guns talking, not diplomats.
The outlook for this conflict largely depends on the role the United States decides to play. In this context, mixed and very contradictory signals are being received.
For instance, the U.S. President left the G7 summit in Canada early. In a prior post, he stated that "Iran must not have nuclear weapons" and urged all residents of Tehran to "leave the city immediately." Furthermore, Donald Trump ordered his national security team to gather in the Situation Room (used for emergency meetings during crises). While this doesn't automatically mean that the U.S. will enter the war, the communication systems installed in this room allow the President to command U.S. troops globally. It's also worth noting that the U.S. has deployed 17 Stratotanker aerial refueling aircraft and a carrier strike group led by the USS Nimitz to the region.
The latest publication by The Washington Post added fuel to the fire by suggesting that Trump might unilaterally decide to enter the war without seeking Congressional approval, as required by the U.S. Constitution. These concerns were raised by "several members of Congress who requested anonymity." At the same time, lawmakers, including Republican Thomas Massie and Democrat Tim Kaine, introduced resolutions in the House and Senate aimed at prohibiting U.S. participation in a war between Israel and Iran—highlighting the seriousness of the situation.
Trump himself neither confirms nor denies these conversations/speculations. According to him, he expects "a complete abandonment of the nuclear program" from Tehran. He also promised changes to the current situation "within the next two days." What exactly this means or what might happen during that timeframe, the U.S. President did not specify.
Thus, the intrigue remains unresolved, and for the EUR/USD pair, it is currently advisable to stay on the sidelines. "The market is ignoring classic" fundamental factors, and predicting the course of the Middle East conflict—especially the potential involvement or non-involvement of the U.S.—is virtually impossible due to Trump's unpredictability. For now, stay out of the market.
