It was a good sign to see the EUR/USD post a small gain yesterday despite the rebound in oil prices. This morning saw the currency pair hold around that 1.1700 handle ahead of the release of US PPI data later, and more importantly, US-Iran peace talks in Islamabad. It is far too early for markets to re-focus on fundamentals yet. Nothing else matters more for the EUR/USD forecast now than energy prices, which could dictate the ECB’s rate decision this month and beyond. Unless there is a re-escalation in the conflict and oil prices spike again, markets will continue to price out the odds of rate hikes from the ECB and other central banks in the weeks ahead.
It is all about peace talks now
The ceasefire didn’t quite deliver the downside in oil that some had hoped for. Israel’s renewed strikes on Lebanon shortly after the agreement unsettled things again, prompting Iran to restrict tanker movements through the Strait of Hormuz. That said, Iran has so far avoided escalation ahead of the weekend talks, which has helped steady nerves slightly.
Even so, uncertainty lingers. The Strait remains effectively constrained, with only limited shipping allowed through. While there has been political noise, the broader tone is still one of restraint on both sides, at least for now.
All eyes are firmly on the peace talks. A breakdown could easily trigger another spike in oil, weighing on risk sentiment and, by extension, EUR/USD. On the flip side, a credible agreement could see crude come under renewed pressure, potentially drifting back towards pre-conflict levels and offering support to risk assets.
Sentiment improves as oil stabilises
Market sentiment has shifted quite noticeably during this shortened trading week. What was a defensive, dollar-led environment through much of March has reversed course following the ceasefire announcement. Since then, risk assets have found a bid, oil has pulled back before stabilising, and the dollar has surrendered a portion of its safe-haven strength—though it’s now largely in wait-and-see mode ahead of the talks.
Whether this is simply a relief rally or the beginning of something more sustained remains to be seen. However, the price action so far suggests this move could have some legs, at least in the near term.
The EUR/USD has been one of the clearer beneficiaries of this shift, largely due to the energy link. If shipping routes begin to normalise, there’s scope for further unwinding of defensive positioning. That said, a fair amount of this adjustment may already be in the price. The more straightforward gains could be behind us, and markets may now need a period of consolidation before extending the move further.
Technical EUR/USD forecast and key levels to watch
From a technical perspective, EUR/USD had already been showing signs of resilience prior to the ceasefire, with a sequence of higher lows forming in recent sessions. That structure hinted at a gradual shift in momentum.
The subsequent push higher reinforces the view that the bulk of the downside pressure may now be behind us—assuming no fresh escalation in the Middle East. In this environment, dips on the EUR/USD chart could increasingly attract buyers, with the market potentially continuing to unwind long dollar positions.
In the short term, this opens the door for a move towards the 1.1750–1.1800 region, where resistance may start to come into play.
On the downside, initial support sits at 1.1667, which aligns with a previous high and the 200-day moving average. Below that, attention turns to 1.1605—Tuesday’s high—which now needs to hold as support. Beneath this level lies the January low at 1.1578, recently reclaimed.
This leaves the 1.1578–1.1605 zone as a key support area. A sustained break below it would weaken the current constructive outlook and potentially shift the bias back to the downside.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
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