EUR/USD Weekly Outlook, June 30, 2025 -Euro Eyes 1.20 as Dollar Slides on Middle East Truce and Fed Shake-Up

• The war in the Middle East is temporarily on hold, and Trump is now looking for a “shadow” Fed Chair to quietly prepare the ground for a more accommodative monetary policy. The dollar is plunging.
• Europe reaches a (not unanimous) deal to raise military spending to 5% of GDP. With the euro surging, the ECB may find inflation retreating faster than expected.
• EUR/USD smashes through the 1.15 resistance level and now appears to face few real obstacles on its way to 1.20.

Middle East Truce, Shadow Fed Politics, and the Euro’s Ascent to 1.20

As the dollar navigates what could become its worst year of the 21st century, U.S. and Israeli strikes appear to have pushed Tehran into accepting a ceasefire – hopefully a lasting one.

All parties are declaring themselves victors and denying defeat, but one likely outcome is a scaled-down version of Iran’s nuclear program. With tensions easing, oil prices – previously driven higher by fears of a prolonged conflict—have started to retreat, freeing Trump to turn his attention to other priorities. Chief among them: Jerome Powell’s successor at the Federal Reserve.

Following a hawkish tone at the most recent FOMC meeting, Fed Chair Powell struck a more measured note in his testimony before Congress. Observers suggest even Powell may be aware that a Trump-named shadow figure could quietly start shaping sentiment within the FOMC as early as this fall. That prospect is fueling distrust in the Fed’s institutional stability and accelerating capital outflows from the U.S., sending the dollar sharply lower.

Trump may soon tout NATO’s new agreement with the EU to boost military spending to 5% of GDP as another win for his voter base – alongside a dramatic policy shift at the Fed, which he argues should cut interest rates immediately.

Meanwhile in Europe, the euro’s strength across global currencies gives the European Central Bank more room to maneuver. With imported inflation seemingly under control, the ECB could continue tightening policy without derailing the economy.

The dollar’s decline now appears to be aiming squarely at one target: 1.20 on the EUR/USD.

Technical Analysis: EUR/USD Breaks Out as Path to 1.20 Comes Into Focus

The 1.20 level on EUR/USD is significant for several reasons – but from a technical standpoint, the path forward looks increasingly clear.

Chart analysis shows that this is the line connecting the peaks of 2018 and 2021. Breaking through that resistance would trigger a technical breakout, leaving only 1.225 as the next major ceiling before the dollar enters true free fall.

Despite a sharp rise in early 2025, the 12-month rate of change for EUR/USD—currently at +9%—is not yet at extreme levels. During previous major dollar downturns since 2008, a 12-month ROC of at least 15% was needed to mark a primary top. That suggests more downside may be required before calling a long-term bottom for the greenback.

With the 1.12 cap decisively breached, EUR/USD now seems to have a wide-open runway. For the moment, the only meaningful support lies in the dynamic floor provided by the 50-day moving average, currently around 1.135.

Traders and investors may now consider two strategies: wait for a pullback to the moving average to reduce USD long exposure – or jump on the trend and go long EUR/USD. Only a reversal below 1.12 would invalidate this bullish scenario, which sees 1.20 as the next major milestone.

The daily chart shows a robust and consistent uptrend, confirming the long-term bullish breakout.