Euro Holds Ground, Dollar Steadies as Market Awaits Iran Sanctions

EUR/USD traded around 1.16643 on Monday with limited overall volatility. After the U.S. Treasury's unexpected buyback announcement triggered sharp swings in the bond market and subsequent dollar fluctuations, market sentiment stabilized at the start of the week, with the pair returning to the range seen since mid-May.

**Dollar Steadies Amid Iran Risk**

The dollar recovered after slipping to a three-month low in the previous session on falling U.S. Treasury yields, becoming a key factor capping further euro gains. Meanwhile, U.S. Treasury Secretary Bessent is expected to unveil specific economic sanctions against Iran on August 24, with market concerns over escalating Middle East tensions providing support for the safe-haven dollar. Reports indicate Iran has warned that if Gulf neighbors participate in an "economic war" against it, retaliation would target oil shipping routes in the Persian Gulf, keeping geopolitical risk premiums in place.

**Central Bank Policy Expectations Limit Euro Downside**

Despite a steadier dollar, the euro's downside remains cushioned by European Central Bank policy expectations. Markets broadly anticipate the ECB to continue its tightening cycle at the September meeting, providing underlying support for the euro. On the other hand, the Fed's July meeting minutes showed officials leaning toward faster rate hikes before inflation makes further progress, and with oil-driven inflation risks adding pressure, expectations for at least one Fed rate hike by 2026 have strengthened. The interplay of bullish and bearish factors leaves the pair lacking clear directional momentum.

**Technical Focus on 1.17 Level**

On the technical front, after the euro broke above the 200-day moving average and key Fibonacci retracement levels, bulls are waiting for a firm hold above the 1.1700 handle before building new positions. On the upside, resistance is seen near 1.1733; initial support lies at the 61.8% retracement zone. In the near term, the specifics of the Iran sanctions plan and the degree of market concern over energy supply will be key variables determining the next directional move for the dollar and the euro.