Safe Haven Assets Boost Dollar

The ongoing conflict has driven investors toward safe haven assets like the US Dollar. Iran has warned against US military action, leading to increased global tensions. The Federal Reserve has adjusted its growth projections, cutting GDP forecasts for 2025 from 1.7% to 1.4%, while raising PCE inflation expectations to 3%.

US economic data indicated slowing momentum, while Euro Area inflation remained flat in May. The EUR/USD broke below a key support level, indicating a bearish trend. The pair is testing support at 1.1450-1.1470 with further decline anticipated, while resistance stands at 1.1530.

With the Dollar showing continued strength on the back of Powell’s firm tone, traders will need to reassess their exposure to dollar-sensitive instruments, especially in relation to safe haven demand. His comments, tied in with the Fed’s cautious monetary policy outlook, suggest that any repricing in interest rate expectations is likely to emerge slowly, barring any major downside in inflation data. What stands out is the Fed’s decision to hold rates steady while still hinting at possible cuts later in the year—an approach that has given the Dollar short-term support, as the more immediate message appears less dovish than anticipated.

Euro Struggles Amid Tensions

Over in Europe, with the EUR/USD not managing to stay above 1.1500 and now struggling to stabilise near 1.1485, we’re seeing signs that downside pressure might build further. That pullback—triggered not just by Dollar resilience but also by flat inflation data within the Euro Area—calls for tighter risk thresholds on long Euro positions, at least until we get more clarity on regional price dynamics. Support identified around 1.1450–1.1470 is worth watching. Should it be breached with momentum, technical selling could push the pair lower, likely drawing attention around the 1.1400 area in the short term.

Alongside that, newsflow around Middle East tensions has started to dominate positioning across multiple asset classes. The US President’s mixed signals about possible intervention are feeding into tactical moves favouring the Dollar. It’s no surprise, then, that Gold and Treasuries have also caught a bid, but what’s relevant here is the sustained positioning into lower-risk assets, not just a one-off reaction to headlines. Traders will need to remain agile, particularly into weekends, when surprise moves or military developments can catch risk-oriented trades offside.

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