EUR/USD Not Out of Woods Yet as Investor Watch Middle East Developments

• EUR/USD struggles to sustain gains as oil prices and geopolitics cap upside.
• US dollar remains resilient as elevated energy prices delay expectations of rate cuts.
• Euro faces pressure as weak data and geopolitical risks weigh on sentiment.

It’s difficult to see the gaining any real traction in the near term without a meaningful shift in tone from Tehran. Right now, markets are being pulled in every direction by headlines tied to the Iran situation, and positioning for a quick resolution feels a bit premature. If anything, Iran seems comfortable allowing elevated energy prices to work in its favour, which continues to cap any meaningful upside for the pair.

Iran: US Is Negotiating With Itself

Reports indicate Iran has received a 15-point proposal from the US, covering areas such as sanctions relief, nuclear restrictions, and access through the Strait of Hormuz. On paper, it looks constructive, but the messaging from Tehran suggests otherwise. Publicly, there appears to be little willingness to compromise, with officials even claiming the US is “negotiating with itself.” Meanwhile, overnight developments show tensions remain elevated, with continued strikes across the region.

There’s also a clear indication that Iran views elevated crude oil prices as a source of leverage. The message is fairly straightforward: oil prices are unlikely to ease unless broader geopolitical risks are reduced. That alone complicates the outlook for currencies like the euro, which tends to be sensitive to energy shocks.

Before discussing the macro influences of the and euro further, let’s take a look at the chart of the EUR/USD first.

EUR/USD Technical Analysis and Levels to Watch

In recent sessions, the EUR USD exchange rate has managed to recover alongside broader risk assets following a sharp two-week decline. Last week saw a solid rebound, with prices climbing back above the 1.15 handle and trading around 1.16 at the time of writing, holding onto much of Monday’s gains after Trump’s Truth Social post triggered a broader market rally.

The 1.16 level is notable, having previously acted as resistance and triggered the pullback seen in the second week of March. It now stands as a key level that needs to be convincingly reclaimed for euro bulls to gain confidence that a bottom may be forming.

Much will depend on developments surrounding US–Iran negotiations. At the very least, a move above 1.1667 — the March 10 high — would be encouraging. A clean break here would establish a higher high and offer a more constructive technical signal.

If that plays out, we could see follow-through buying toward the 1.1750–1.1800 resistance zone.

On the downside, the outlook would quickly turn negative again if prices close back below 1.15 on a daily basis, particularly if Monday’s low at 1.1485 is breached. In that case, a move toward the low 1.14s becomes likely, with further downside potentially extending into the low 1.10s.

Reaching those lower levels would likely require a further escalation in Middle East tensions — something that, at this stage, cannot be ruled out.

US Dollar Resilience Still the Dominant Theme

Despite some cautious optimism in markets, driven by talk of potential ceasefire discussions, it still feels too early to call a sustained move lower in the US dollar. If anything, Iran’s influence via energy markets arguably outweighs the military pressure from the US and its allies. As long as the Strait of Hormuz remains a key risk point, the global growth outlook stays fragile, with some economies already feeling the impact through tighter energy supply.

With staying elevated, rate expectations have shifted quite decisively. Markets have largely priced out any Federal Reserve easing this year, with inflation likely to remain sticky for as long as the conflict drags on.

Euro Still on Uncertain Footing

For the euro, it’s not the most comfortable position right now. The European Central Bank is walking a fine line, with markets leaning toward an April rate hike, though policymakers are unlikely to fully endorse those expectations just yet.

On the data front, the German Ifo index dipped in March, which wasn’t entirely surprising given the drag from rising energy costs on business sentiment. Whether the Middle East conflict simply delays or completely derails Germany’s expected recovery remains unclear, but markets are increasingly pricing in downside risks.

There’s also limited data on the calendar this week, meaning central bank commentary could take on added importance. While recent figures offered some modest encouragement on the manufacturing side, overall business confidence remains under pressure. The longer geopolitical tensions persist, the harder it becomes to build a constructive short-term case for the euro.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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