EUR/USD forecast: Risk appetite hit as yields and dollar extend rise – FOREX Friday

Yesterday saw a number of markets drop sharply and we have seen some good downside follow-through so far into today’s early European session. Even the mighty Nasdaq 100 futures took a hit, after a relatively narrow tech-led rally pushed the benchmark to fresh record highs. Silver took the brunt of the sell-off, down another 7% after yesterday’s 3% drop. Gold slipped 2% and the dollar was up against all major currencies. As global yields continued to surge, the UK’s 30-year yield jumped to 5.82% to reach its highest level since 1998. But by lunchtime, some of those moves unwound a little amid profit-taking and as Iran's foreign minister Araqchi said they had received messages from the US saying they are seeking continued talks. Still, for as long as ongoing situation regarding the Strait of Hormuz remains unresolved, this should keep the price of oil support and the EUR/USD forecast undermined, especially in light of the big surge in global bond yields.

 

What is causing all this dollar strength?

 

Markets look to be reacting to a combination of fading geopolitical optimism and a fresh repricing of the Fed path. A great deal of hope had been pinned on the Trump-Xi meeting delivering at least a handful of constructive headlines — not just on trade, but potentially on Iran too. Instead, the absence of meaningful progress has left risk sentiment exposed. US equity futures have slipped alongside European stocks, while oil prices have resumed their climb, handing the dollar another leg higher both from a risk-off point of view and also as traders continue to scale back expectations for Fed easing following this week’s run of hawkish US data.

 

At the same time, bond yields continue to grind higher, adding another layer of volatility across global markets. Investors are becoming increasingly uneasy about the scale of government borrowing across developed economies and what persistently elevated yields could mean for growth prospects, debt servicing costs, and broader financial conditions. The sharp move higher in sovereign yields is no longer being treated as a temporary adjustment — it is increasingly becoming a macro headwind in its own right.

 

Inflation concerns remain front and centre. After Tuesday’s hotter-than-expected US CPI print rattled markets, Wednesday brought another upside surprise through producer prices. April’s PPI posted its strongest monthly gain since March 2022 and came in well above consensus, reinforcing the view that underlying price pressures remain far stickier than policymakers — and markets — had hoped. Adding to that, US import prices also surged, raising concerns that companies will either have to absorb higher costs through weaker margins or pass them on to consumers, keeping inflationary pressures alive deeper into the cycle.

 

Energy prices remain a key part of the inflation story. Elevated crude oil prices have already weighed on broad market sentiment for some time, although the resilience in semiconductor names and ongoing AI enthusiasm had until now helped shield US tech indices from the broader macro pressure. That resilience finally appears to be cracking today, with higher yields, firmer oil, and persistent inflation concerns beginning to challenge even the market’s strongest momentum trades.

 

EUR/USD forecast hit as it breaks key support

 

Despite elevated oil prices remaining well above the $100 mark, the euro was able to attract buyers around the 1.1700 level for several days. But yesterday that level gave way and we closed below the 20-day. That, in turn, paved the way for further technical selling that took place earlier today.

 

The EUR/USD could now hold below 1.1700 given the broader deterioration in global risk sentiment, and a fresh rally in oil prices. At the same time, if the AI-driven enthusiasm that has fuelled equity markets could also fade, especially with Nvidia’s earnings next week representing a major event. So, the downside risk to the EUR/USD forecast are increasing as we have been warning throughout the week.

 

 

Next support on the EUR/USD chart is seen around the 1.1575-1.1605 area, followed by 1.1500 handle if risk deteriorates sharply.

 

What will markets be watching next?

 

As before, markets remain highly sensitive to developments surrounding Iran and AI-related themes, particularly given the knock-on impact through equities and broader risk appetite. With little progress emerging from the Gulf situation, and global yields risings, the US dollar can keep on pushing higher from here. Unless markets receive a meaningful positive catalyst soon, the risks continue to favour the greenback.

 

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R