EUR/USD Forecast: Euro Corrects Near 1.1618 After ECB Signals Further Tightening

Last Thursday, the regulator raised the deposit rate to 2.25%, the main refinancing rate to 2.40%, and the marginal lending rate to 2.65%, becoming the first among the G7 countries to respond to the escalation. ECB President Christine Lagarde noted that the energy shock is large-scale and prolonged, creating significant pressure on consumer prices and raising the risk that inflation will remain fixed at elevated levels, while demand for labor is slowing and the negative impact on economic growth may be more significant than previously expected. This is the main risk on which the next monetary policy decisions will be based. At the same time, officials confirm their commitment to a data-dependent policy, but acknowledge that the consequences of the energy crisis may last much longer than the short-term period of geopolitical instability. An additional argument in favor of the hawkish cycle was the change in inflation expectations: it is expected to reach 3.0% this year, 2.3% in 2027, and 2.0% in 2028.

The most noticeable negative impact of the energy crisis is seen in Germany, where rising energy prices are once again intensifying stagnation trends and preventing a sustainable economic recovery. According to updated forecasts from the German Federal Bank, inflation in the eurozone’s largest economy will reach 2.9% this year and 2.7% next year, remaining significantly above the ECB’s 2.0% target, while a return to 1.9% is expected only by 2028. According to the latest data, year-on-year inflation added the previous 2.6%, while in monthly terms it slowed by 0.2%, whereas the harmonized index for the same period reached 2.7% and –0.1%, respectively. Economic growth forecasts have also been downgraded: the estimate for gross domestic product (GDP) dynamics for the current year was reduced to 0.5%, while the forecast for 2027 was revised to 0.8%. Overall, the ECB notes that the main consequences of the energy shock will be felt mainly next year, while risks to the economy remain asymmetric — toward faster inflation and slower business activity. An additional increase in oil prices above the baseline scenario, which assumes an average price of 96.9 dollars per barrel, could significantly worsen macroeconomic indicators.

Meanwhile, the key driver of the dollar’s sharp rally was U.S. President Donald Trump’s cancellation of planned airstrikes on Iranian infrastructure. In addition, over the past weekend, reports emerged that the final peace plan between Washington and Tehran is in the final stage of coordination, and according to Pakistani Prime Minister Shehbaz Sharif, the document is likely to be signed in Switzerland on June 19, after which several rounds of technical negotiations will take place. According to the statements, the deal will safely open shipping routes in the strategically important strait and will include Iran’s commitments to abandon nuclear weapons. Investors perceived these reports as a significant step toward de-escalation of the conflict, which led to a sharp profit-taking in long positions on the U.S. dollar.

Support and resistance levels

On the daily chart, the instrument is consolidating below the support line of the channel with dynamic boundaries at 1.1810–1.1610.

Technical indicators maintain the sell signal: the fast EMAs on the Alligator indicator are again moving away from the signal line, expanding the fluctuation range, while the AO histogram is forming new downward bars in the negative zone.

Support levels: 1.1560, 1.1420.

Resistance levels: 1.1650, 1.1780.

EUR/USD trading scenarios and forecast

Short positions should be opened after the price consolidates below 1.1560, with a target at 1.1420. Stop-loss — 1.1620. Expected timeframe: 7 days or more. Long positions should be opened after the price consolidates above 1.1650, with a target at 1.1780. Stop-loss — 1.1570.