EUR/USD Outlook: The Dollar Regains Strength Amid Escalating Geopolitical Tensions
Author: Julian Pineda, CFA, CMT - Market Analyst
Date: 02/03/2026
Market Overview
At the beginning of the week, the EUR/USD currency pair experienced a notable decline, dropping over 1% as the US dollar gained strength. This shift is primarily attributed to heightened geopolitical tensions in the Middle East, which have led to increased demand for safe-haven assets like the US dollar.
Geopolitical Developments
Recent events include coordinated military actions by the United States and Israel against Iran, resulting in significant casualties, including the death of Iran's supreme leader. In retaliation, Iran launched missile and drone strikes targeting Israeli and US military positions, escalating the conflict and increasing market uncertainty.
The situation has raised concerns about the Strait of Hormuz, a critical passage for global oil and gas transportation, further impacting market sentiment.
Market Indicators
The Fear and Greed Index currently sits at around 40 points, indicating a prevailing sense of fear in the market. This sentiment is reflected in the fixed-income market, where US Treasury bonds have seen increased demand, pushing the yield on the 10-year note above 4.00%, while European bond yields remain below 3.00%. This widening yield differential enhances the attractiveness of US assets, contributing to the dollar's strength.
Technical Analysis of EUR/USD
The technical outlook for EUR/USD suggests that the recent selling pressure may jeopardize the upward trend established since November 2025. Key indicators such as the RSI and MACD are showing bearish signals, indicating a potential continuation of the downtrend.
Key Levels to Watch:
- 1.18707: Resistance level aligned with the upper boundary of the recent sideways range.
- 1.17784: Near-term barrier aligned with the 50-period simple moving average.
- 1.16623: Key support level aligned with the 200-period simple moving average, which could confirm a bearish bias if breached.
Conclusion
The ongoing geopolitical tensions are likely to maintain pressure on the EUR/USD pair, with the US dollar remaining favored as a safe-haven asset. Traders should monitor the evolving situation closely, as further developments could significantly impact market dynamics in the near term.