Live Chart and Current setup
EUR/USD is not trading with the regular fundamentals; it is not trading as a Europe story or a US story, but rather as a war-driven, energy price-inflation-rates regime, where the US-Iran war headlines are currently driving narratives around inflation, which has now raised discussions on how central banks will position their monetary policy. The EUR/USD can now be described as a proxy FX pair for the energy shock/rate differentials story.
The pair closed around $1.1677 on Friday (down ~0.38% on the day). However, it remained on track for a higher weekly close, gaining 1.82% as markets repriced the ceasefire news and the reopening of the Strait of Hormuz on Thursday.
Spot price on the weekly chart is range-bound, oscillating between 1.1414 and 1.1813.
EUR/USD Forecasts: Macro Drivers
1) Energy Shock
The oil shock remains a headwind for the risk-associated Euro. Europe is heavily dependent on oil and gas imports, making the Euro vulnerable to high energy prices. The USD is a safe-haven asset, which is why changes in oil prices often lead to corresponding changes in the EUR/USD. The oscillatory nature of recent EUR/USD price moves is the result of the constant change in the war rhetoric, from escalation to diplomacy.
2) Changing Rate Expectations
Before the US-Iran war commenced, we had published 2026 forecasts for EUR/USD, expecting it to move in a dovish direction, with the ECB less dovish than the Fed. It was supposed to be a rate-differential trade on EUR/USD in 2026.
However, the war and resultant oil shock have changed everything. According to a Reuters report, traders are now pricing in two ECB rate hikes in 2026, a marked shift from earlier dovish expectations. Furthermore, the Fed’s easing expectations for Q4 2025, which were supposed to carry into 2026, have also been scaled back dramatically, with markets pricing in only one 25 bps rate cut for 2026.
This repricing has enabled the EUR/USD to get some stability and push on to the weekly gains we saw last week, amid the oil shock.
3) Choppy Risk Sentiment
The constantly evolving war headlines have made risk sentiment choppy. It is hard to see either risk-on or risk-off sentiment dominate the markets for three days straight. The late-March slump in the Euro, driven by growth fears, has been replaced by a shift in sentiment following the ceasefire announcement.
EUR/USD Price Catalysts This Week
1. Oil risk premium: Rising energy costs will put pressure on the Euro through the growth-fears/inflation trade-off. Cooling prices are supportive for the Euro; if oil cools, the EUR gets breathing room.
2. Central bank rhetoric: the markets are now very sensitive to the language of policymakers, with hawkish leanings toward curbing energy-driven inflation or dovish leanings to counter slower growth. The Euro is currently benefiting from this hawkish leaning.
3.US yields: rising or falling US yields can alter the direction of the pair. A rise in US Treasury yields benefits the dollar, and a fall in yields (the result of de-escalatory war headlines) will benefit the Euro.
EUR/USD Forecast Scenarios
Base case: The EUR/USD is expected to continue trading in a two-way manner, being range-bound and sensitive to headlines. Therefore, choppy trading around 1.15-1.18, with headlines on the war, oil prices, and central bank rhetoric driving intraday swings. No clean trend moves are expected.
Bull case: the triggers for the EUR/USD to break higher are for oil prices to stabilize and the ECB remaining firm, even as Fed easing expectations re-emerge. We could then see the EUR/USD break past the 1.18 price barrier and reclaim the 1.1921 resistance.
Bear case: a renewed oil price spike, rising US bond yields, and general risk aversion are the triggers for the EUR/USD to head lower. Fears about EU growth and a worsening of the geopolitical headlines will also add to this mix. This scenario will see a push below the 1.14 support, which unlocks access to the uncapped 1.1220 peaks of September 2025.
EUR/USD Technical Outlook
In the medium term, 1.14 and 1.18 are the floor and ceiling of the recent EUR/USD range. However, the pair is now tracking a move towards the 1.1813 resistance and prior high of 24 December 2025, following the break of the 1.1670-1.1699 resistance zone. If the upside move reclaims and breaks 1.1813, the pathway towards 1.1921 (10 Feb high) becomes clearer.
On the flip side, 1.1618 and 1.1550 are potential downside targets if bullish momentum fades and the recently breached zone at 1.1670-1.1699 is taken out once more to the south. The 5 Nov low at 1.1474 is the next available target if the 1.1550 support (13 October 2025 low) is degraded.