EUR/USD plunges below 1.15 as Trump threatens Iran, Dollar surges

• EUR/USD sinks to 1.1484 as safe-haven flows favor the US Dollar.
• Trump demands Iran's "unconditional surrender," DXY jumps to four-day high near 98.80.
• Strong German ZEW data is overshadowed by Fed risks and Middle East escalation.

The EUR/USD pair is collapsing by over 0.60% as the US Dollar (USD) remains bid due to its safe-haven status amid the escalation of the Middle East conflict between Israel and Iran, which appears to be broadening as the White House considers its involvement. At the time of writing, the pair is trading at 1.1484, having dropped from daily highs of 1.1579.

Sentiment shifted sour as US President Trump posted on his social network a demand for Iran's "unconditional surrender," boosting the Greenback, which is hitting a four-day peak, as revealed by the US Dollar Index (DXY). The DXY, which tracks the US Dollar's performance against other six currencies, posts a gain of over 0.67% at 98.79.

CNN reported that Trump's decision to pursue a diplomatic exit from the Middle East conflict is waning, citing officials familiar with the matter. They added that Trump is evaluating using US military assets to strike Iran's nuclear facilities.

Aside from geopolitics, US economic data revealed that US Retail Sales fell for the second consecutive month. At the same time, Industrial Production, announced by the Federal Reserve (Fed), also contracted. Across the pond in the Eurozone, German ZEW data exceeded forecasts, while two European Central Bank (ECB) officials had turned slightly neutral, adopting a wait-and-see mode.

Given the current backdrop, EUR/USD is likely to resume its ongoing uptrend. However, the Fed's monetary policy meeting on Wednesday, the release of its latest Summary of Economic Projections (SEP) and the Chairman Jerome Powell press conference can dictate the pair's direction.

Daily digest market movers: EUR/USD plunges as sentiment worsens

• EUR/USD extended its losses, shrugging off the contraction of US Retail Sales in May, primarily due to a downturn in auto purchases. Sales in May decreased by 0.9% MoM, below the forecasted 0.7% decline. On an annual basis, sales rose 3.3%, easing from a 5% increase recorded in April.
• US Industrial Production declined by 0.2% MoM, missing estimates for a 0.1% uptick. This marks the second contraction in the past three months, indicating weakness in the manufacturing sector.
• On Tuesday and Wednesday, the Fed hosts its latest monetary policy meeting. Traders have priced in the expectation that rates will remain unchanged, but they're eyeing the update of the Summary of Economic Projections (SEP).
• Regarding reaching a deal with the Eurozone, US President Trump said the European Union (EU) is not yet offering a fair deal.
• German ZEW data exceeded forecasts, with both metrics improving. ZEW noted that recent growth in investment and consumer demand has contributed to the upside.
• ECB Francois Villeroy commented that monetary policy is in a good position, even though tensions in the Middle East have risen. He supports ECB President Lagarde's idea of a global role for the Euro. ECB Stournaras stated that the ECB had reached a "first point of equilibrium" and that further rate cuts would be data-dependent, as revealed by Greek media.
• It should be noted that the latest rise in Oil prices, sparked by the Middle East conflict, could trigger an inflation spiral, pushing prices higher and prompting central banks to become slightly hawkish.
• Financial market players do not expect that the ECB will reduce its Deposit Facility Rate by 25 basis points (bps) at the July monetary policy meeting.

Euro technical outlook: Bulls take a breather as EUR/USD drops below 1.1500

The EUR/USD uptrend trajectory is set to continue despite the ongoing pullback dragging spot prices below 1.15. Buyers are taking a respite, as depicted by the Relative Strength Index (RSI), suggesting that bullish momentum is fading.

This could pave the way for an EUR/USD retracement towards 1.1450 or below, challenging the 20-day Simple Moving Average (SMA) at 1.1411. Once cleared, 1.1400 is up next.

Conversely, if EUR/USD bulls regain 1.1500, immediate resistance emerges at 1.1600, followed by June 16 at 1.1614 and the yearly peak of 1.1631.