Both the AUD/USD and EUR/USD currency pairs are experiencing downward pressure amid escalating geopolitical tensions in the Middle East. The AUD/USD pair is down 0.3% around 0.6850 during the Asian session at the start of the week, breaking below the key support level of 0.6900 and underpinning a bearish bias. The Australian Dollar was the weakest against the Japanese Yen, falling 0.62% today, and also declined against other major currencies such as the US Dollar (-0.31%) and Euro (-0.33%) [1]. The risk-off impulse is driven by fears of escalating conflicts, with reports from the Wall Street Journal indicating the US is considering deploying 10,000 additional troops for ground military action against Iran, and warnings from Tehran further dampening demand for riskier assets [1]. S&P 500 futures slumped 0.4% in the Asian session, reflecting dismal market sentiment [1].
The EUR/USD pair, meanwhile, is consolidating above a one-week low and holds steady around the 1.1500 psychological mark during the Asian session. The upside appears limited as rising geopolitical tensions continue to benefit the safe-haven US Dollar and act as a headwind for spot prices. Reports suggest the Pentagon is preparing for weeks of ground operations in Iran, and the entry of the Iran-backed Houthis in Yemen raises the risk of further escalation. Inflation fears from elevated energy prices are fueling hawkish Federal Reserve expectations, which could further underpin the USD and cap the upside for EUR/USD [2].
On the technical front, AUD/USD trades below the 20-day EMA (now at 0.6995), with price action shifting into a bearish sequence [1]. For EUR/USD, the near-term bias is mildly bearish as spot prices remain beneath the flat 200-hour EMA around 1.1550. The MACD line fluctuates tightly around the signal and zero line, and the RSI near 43 suggests sellers retain a modest advantage. Immediate resistance for EUR/USD is at 1.1535, with further barriers at 1.1550 and 1.1580. Initial support stands at 1.1490, followed by 1.1475 and 1.1450 if selling pressure extends [2].
Domestically, Australian Prime Minister Anthony Albanese announced a temporary reduction of the fuel excise on petrol and diesel to 50% for three months to offer relief to households from rising energy prices caused by supply disruptions due to the Middle East war [1]. Meanwhile, the US Dollar Index (DXY) is trading almost flat above 100.00, with traders pricing out two expected interest rate cuts for the year and now seeing a 24.6% chance of at least one hike, according to the CME FedWatch tool [1].
CONCLUSION
Escalating geopolitical tensions in the Middle East are driving risk-off sentiment, strengthening the US Dollar and weighing heavily on both AUD/USD and EUR/USD pairs. Technical indicators for both pairs suggest a bearish bias, with limited upside potential amid ongoing uncertainty. Market participants are closely watching developments, as further escalation could deepen the bearish outlook for risk-sensitive currencies.