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25.08.2026 01:03 AMThe EUR/USD pair began the new trading week within the 16-mark, nearly at Friday's closing price. This behavior of the pair reflects the indecisiveness of both buyers and sellers. The buyers have not managed to return to last week's highs, meaning the resistance at 1.1700 – 1.1710 (the upper line of the Bollinger Bands on the D1 timeframe) remains unbroken, while the sellers have failed to enter the lower 15-figure zone.
In essence, traders have adopted a wait-and-see approach, anticipating the key information drivers for the week. This situation is largely due to the dollar being, figuratively speaking, caught between two fires: on one side, there are significant reevaluations of expectations regarding the Federal Reserve's future policy (in favor of a "dovish" scenario), and on the other, geopolitical tensions surrounding Iran persist.
The geopolitical agenda remains a key factor supporting the dollar amid unfolding events. Washington has decided to move to a new stage of pressure on Tehran. In the coming days, the Trump administration may announce large-scale economic measures against Iran, which will not only involve new sanctions against Tehran itself but also pressure on countries and companies that continue to support the Iranian economy in one way or another. Treasury Secretary Scott Bessent described the upcoming campaign as "the largest coordinated economic pressure," adding that the United States is "entering the final stage of the conflict."
In other words, Washington is trying to shift its confrontation with Iran from a military plane to an exclusively financial-economic one. Meanwhile, Tehran maintains a tough stance, resulting in a stagnant negotiation process. Moreover, Iran has stated its readiness to take retaliatory measures, including the possibility of limiting or completely halting oil exports through the Strait of Hormuz. This sharply increases the risk of a new round of geopolitical tensions and another spike in oil prices (with all the resulting inflationary consequences).
In the currency market, ongoing geopolitical tensions create additional demand for the dollar as a safe-haven asset. In times of increased risk aversion, investors traditionally turn to the U.S. currency. However, this element of the "fundamentals" appears extremely fragile. First, the current escalation primarily occurs in the economic and diplomatic realms, rather than as a new large-scale military confrontation. This form of confrontation fundamentally differs from military conflicts, as it does not entail irreversible consequences such as human casualties or destruction. Thus, should the political will arise, the parties could relatively quickly de-escalate tensions and return to diplomatic tracks.
This leads to our second point. The very history of the Washington-Tehran standoff demonstrates how quickly hard rhetoric can switch to attempts at negotiation. Moreover, this is a two-way street. At the beginning of August, Bessent was open to the idea of an agreement to open the Strait of Hormuz, and intermediaries reported progress in informal contacts. Then Washington announced its "economic Day D" regarding Iran. The situation could easily turn in the other direction just as swiftly.
All of this indicates that opening short positions on the EUR/USD pair, relying solely on the persistence of the Middle Eastern factor, is currently very risky.
A much more stable factor supporting the EUR/USD pair remains the diverging expectations regarding the future actions of the Fed and the ECB. Hawkish expectations about further action by the Fed have notably weakened following the publication of weak July Nonfarm Payrolls, which reported a loss of 23,000 jobs instead of the expected 85,000. The cumulative data revisions for May and June amounted to -103,000 jobs. The unemployment rate dropped to 4.1%, but this occurred against a backdrop of a declining labor force participation rate.
Further signs of cooling in the U.S. labor market will exert additional (and quite significant) pressure on the dollar. In this context, the upcoming Friday will be particularly important for the EUR/USD, as the BLS is scheduled to publish the preliminary benchmark employment revision. This is not a typical monthly adjustment: previously published estimates will be compared with more accurate and comprehensive administrative data on unemployment insurance, allowing for an assessment of how closely the initial employment estimates matched the real dynamics of the labor market.
Weak July Nonfarm Payrolls have already cast doubt on the need to tighten DCP, while Friday's revision could significantly amplify that effect. If the revision indicates that the labor market was overestimated, it would provide another argument against a Fed interest rate hike.
On the opposite side is the ECB. Here, the situation is developing almost in reverse – hawkish expectations are only strengthening. Inflation in the Eurozone accelerated to 2.9% in July, the core rate increased to 2.5%, and service sector inflation reached 3.3%. Meanwhile, the European economy shows signs of recovery: the composite PMI for the Eurozone rose to a 2026 high, and the manufacturing PMI reached 52.8 (the highest level in the last 54 months). Thus, the market is increasingly pricing in a September ECB rate hike to 2.5%. According to a Reuters survey, 83% of economists expect the regulator to take this step by early autumn.
"At the moment," the geopolitical factor exerts pressure on EUR/USD, supporting demand for the dollar as a safe-haven asset. However, this support appears to be situational, while the potential divergence in expectations between the Fed and the ECB has a much more fundamental (in every sense) and stable nature. If the upcoming revision of the U.S. labor market confirms further cooling in employment and European inflation and economic activity continue to rise, the scope for tightening ECB policy will widen. At the same time, the likelihood of a Fed rate hike will shrink.
Therefore, the current bearish momentum of EUR/USD can be regarded as an opportunity to open long positions – with the first and currently only target at 1.1700 (the upper line of the Bollinger Bands on the daily chart).
