Well, that didn’t last long, did it? The much-talked-about “reopening” of the Strait of Hormuz barely made it through a day before Friday’s tensions came straight back into play. Still, there’s a sense that both sides might be posturing — talking tough with the deadline looming to strengthen their negotiating hands. The clock’s ticking again, with talks supposedly lined up for tomorrow in Islamabad. That said, Tehran isn’t exactly sounding encouraged: the Foreign Ministry has made it clear they’ve had no serious offers on sanctions relief, and there’s still no decision on the next round of US negotiations. What’s also curious, though, is the market reaction. For all the noise, you wouldn’t say risk sentiment has taken a proper knock. It feels more like a temporary stumble, looking at the overall reaction of the market. But with just two days to go until that ceasefire deadline, markets may not looks so relatively composed the longer this drags on. Still, the overall feeling is that traders are holding onto the belief that something constructive will eventually come through. We maintain a cautious EUR/USD forecast for now.
Tensions escalate again
Things have undeniably heated up since Friday afternoon. The US seizure of an Iranian-flagged vessel near Hormuz prompted Tehran to threaten retaliation and cast doubt over any further talks in Pakistan. The two-week ceasefire is due to expire on Wednesday, and there’s little sign of a breakthrough so far. The latest twist saw Iran reverse its brief reopening of the strait, placing it back under what it calls “strict control”. They’ve accused the US of failing to meet obligations and maintaining a blockade on Iranian ports. Reports of attacks on commercial shipping since the re-closure haven’t helped calm nerves either.
But there’s still hope
Despite the rhetoric, there are hints that the door isn’t completely shut. Trump has struck a familiar cautiously optimistic tone about a deal, albeit while simultaneously warning of potential strikes on Iranian civilian infrastructure if talks fail.
Iran’s stance hasn’t shifted much: they want the Hormuz blockade lifted as a starting point for meaningful negotiations. Publicly, they’re sticking firm, insisting differences — particularly around nuclear issues — remain significant and unresolved. Even so, markets seem to be taking it all in stride.
There are also some quieter diplomatic channels at work. Pakistan’s Army Chief Munir has reportedly spoken with Trump, stressing that the Hormuz blockade is a key obstacle to talks. According to Reuters, Trump said he’d take that view into consideration.
Crude oil trims gains but remains elevated
For now, oil has eased off its earlier spike. Prices jumped sharply at the Asian open following the weekend headlines but have since drifted lower. Brent is now sitting around the $95 mark — still up roughly 5%, but also off the earlier highs. The dollar has also pared back gains, crypto has bounced, and equities were showing a fair bit of resilience. S&P 500 futures were down just 0.5% at the time of writing, after being down around 1% initially.
The longer crude oil prices stay elevated, the more uncomfortable the inflation picture becomes. There’s a real risk that this oil shock compounds existing tariff pressures and starts to unanchor inflation expectations. This is clearly something central banks will be watching closely. For Eurozone, it is a bigger headache given that it also relies heavily on oil imports. Stagflation risks could ultimately weigh on European assets the longer crude oil prices stay elevated.
Also in focus: Warsh confirmation hearing, PMIs and US retail sales
Beyond geopolitics, there’s plenty on the calendar this week.
Kevin Warsh faces his Senate Banking Committee confirmation hearing tomorrow for the Fed Chair role. Expectations are that he’ll lean dovish on rates, but take a firmer line on reducing the Fed’s balance sheet. If he says something much more hawkish, then the dollar may respond.
European PMIs are among key data highlights on Tuesday. Eurozone and UK PMIs will be closely watched, as the region’s reliance on energy imports makes it vulnerable to higher oil prices. Rising input costs, particularly in manufacturing, may influence business conditions and shape the outlook for both manufacturing and services sectors in the coming months.
We’ll also get US retail sales for March on Tuesday, which are expected to hold up reasonably well despite the drag from higher energy costs.
But none of these will matter more than the US-Iran negotiations this week, even if, for now, markets are taking it all rather calmly.
EUR/USD forecast: Technical analysis and levels to watch
The technical EUR/USD forecast has turned a little more cautious after rates gapped lower and following Friday’s reversal around the key 1.1800–1.1850 area. This region is where the initial selling began when the Middle East conflict started at the end of February/start of March.
For the EUR/USD to establish a more constructive technical outlook, this area needs to be reclaimed decisively. IF that happens, the next bullish targets include 1.1900 and then the 1.2000 handle.
On the other hand, if the Friday’s inverted hammer candle draws in sellers and we see a more meaningful drop than the overnight gap, then rates could dip deeper, possibly heading back to the next support in the 1.1670–1.1675 area, which is also where we have the 200-day moving average converging.
Further lower the 1.1575–1.1605 area, could be another support zone to watch should the 200-day breaks again.
All told, the EUR/USD is a level-to-level market, given that we are trading within a wide range, and the ongoing US-Iran tensions.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
