EUR/USD Forecast: Euro retreats as markets turn risk-averse

EUR/USD gathered bullish momentum and climbed to its highest level since November 2021 above 1.1600 on Thursday. With markets turning risk-averse on Friday, the pair corrects lower but manages to hold above 1.1500.

The soft producer inflation data for May and the disappointing weekly Initial Jobless Claims print from the US made it difficult for the US Dollar (USD), which suffered large losses against its rivals on weaker-than-expected May Consumer Price Index (CPI) data on Wednesday, to find demand on Thursday. As a result, EUR/USD extended its weekly rally.

In the early trading hours of the Asian session on Friday, news of Israel launching a military strike against Iran triggered an intense flight to safety. The USD benefited from safe-haven flows and caused EUR/USD to turn south.

In the second half of the day, the University of Michigan (UoM) will publish the Consumer Sentiment Index data for June. Investors are likely to ignore this report and remain focused on geopolitical headlines.

Market participants could remain interested in safer assets amid growing fears over a further escalation of the Israel-Iran conflict and force EUR/USD to stay on the back foot heading into the weekend. Israel's Prime Minister Benjamin Netanyahu said that the operation will continue for as many days as it takes.

EU/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart holds above 50 and EUR/USD continues to trade above the 20-period Simple Moving Average (SMA), suggesting that the bullish bias remains intact despite the recent pullback.

On the upside, 1.1600 (upper limit of the ascending channel) aligns as immediate resistance before 1.1660.