The EUR/USD pair recorded its weakest close since last Wednesday, shedding one-third of a percent to end the session at 1.1406, near the day's lows. Neither hawkish rhetoric from a prominent European Central Bank dove nor a soft US payrolls proxy provided any meaningful support to the single currency.
Rising Tensions and Market Anxiety
Late-day US strikes on Iranian targets and the full reinstatement of sanctions have created a nervous backdrop ahead of Wednesday's Federal Reserve minutes, scheduled for 18:00 GMT. The situation in the Strait of Hormuz further escalated following reports of fresh Iranian strikes on commercial shipping. This led to a scramble for the US Dollar as a safe-haven asset, while Brent Crude Oil prices surged sharply by the close of the session.
ECB Policy and Market Outlook
Tuesday’s calendar featured remarks from a Governing Council member, typically viewed as a reliable dove, whose tone leaned notably hawkish. This intervention reinforced signals from Monday, when an Executive Board member stressed that the fight against inflation remains incomplete. Markets are currently pricing in a high probability of one further quarter-point ECB hike this year, though expectations for action at the July 23 meeting remain minimal.
Conflict in the Strait of Hormuz
The core of the market volatility stems from the Gulf, where Iranian forces struck three commercial vessels passing through the Strait of Hormuz between Monday and Tuesday. Affected vessels included a Qatari liquefied natural gas carrier and a Saudi tanker. One ship was left burning off the coast of Oman, though no casualties among the crew have been reported.
Washington’s Retaliatory Response
The United States responded in two parts late Tuesday. The US Central Command announced retaliatory strikes against Iranian drone, missile, and radar installations, condemning the vessel attacks as a clear violation of the ceasefire agreement signed at Versailles. Simultaneously, the Treasury Department revoked all previous sanctions relief regarding Iranian Crude Oil exports, granting buyers until July 17 to wind down existing transactions.
Focus Shifts to Federal Reserve Minutes
Investors are now looking to the upcoming FOMC minutes for clarity on how the committee assesses energy-driven inflation against a cooling hiring pulse. Current futures pricing reflects approximately a 75 percent probability of a hold on July 29, with the remaining sentiment tilted toward a hike rather than a cut, and zero easing priced in for 2026.
Technical Levels and Market Bias
The current market bias is bearish. Tuesday’s rejection near the 1.1450 ceiling establishes the first major hurdle, with the 1.1500 figure and the 50-day Exponential Moving Average near 1.1550 acting as additional resistance. On the downside, the 1.1400 handle serves as critical support; failure to hold this could open the path to 1.1350 and a retest of the late-June base near 1.1300. Only a dovish surprise in the minutes or genuine de-escalation in the Strait would likely alter this technical arithmetic.
