The EUR/USD could face further downward pressure as and firm U.S. economic indicators drive investors towards the safety of the dollar.

Recent geopolitical events, such as Israel's strike on Iran, have heightened tensions and bolstered demand for safe-haven assets like the dollar. If these , it could sustain bullish momentum for safe havens, potentially dragging the EUR/USD lower.

Additionally, shifts in options markets suggest that investors are increasingly hedging against a potential decline in EUR/USD. The notable decrease in the volatility premium for calls over puts since late May in both 1-month and 3-month risk reversals points to .

Furthermore, current positioning in the market might amplify downside risks. According to CFTC statistics, net-long euro positions are near seven-month highs; a failure of EUR/USD to maintain its broader uptrend could trigger a reduction in these long positions, exerting additional downward pressure on the currency.

U.S. economic data and yields could be problematic for longs. Labor markets are softening but aren't falling off a cliff. Inflation remains above the Fed's target and the June University of Michigan survey indicated consumer sentiment improved sharply.

Also, if U.S. yields and rates fail to soften, they could underpin the dollar.

EUR/USD bulls may have to rethink their views should dollar-positive influences intensify.
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CFTC


(Christopher Romano is a Reuters market analyst. The views expressed are his own)