The EUR/USD reversed earlier gains to close lower on Friday after the earlier optimism about the Strait of Hormuz re-opening failed to keep the dollar and crude oil under sustained pressure. While crude oil fell about 9% on the day, it closed well off its earlier lows. There was some confusion after Iran refuted some of Trump’s claims and over the weekend Iran decided to close the strait again. The EUR/USD outlook could be influenced significantly by what happens over the next 24-48 hours.
On Friday, risk assets rallied sharply after a steady stream of headlines out of Tehran and Washington hinting that things might be edging towards a resolution, but by the close of play, plenty of uncertainty still hung in the air about what any genuine path to peace might look like. Iran initially declared that the Strait of Hormuz was fully open—this coming just a day after Israel agreed to halt its bombing campaign in Lebanon. However, that statement was later watered down, making clear that vessels and cargo tied to what it called “hostile” nations would not be covered. Meanwhile, Donald Trump made it clear their own blockade would remain in place.
Strait of Hormuz uncertainty lingers
At the weekend, Iran said it is determined to keep control of the Strait of Hormuz for the duration of the conflict, describing the continuing US blockade of its ports as a breach of the ceasefire. The news caused cryptocurrencies to drop, suggesting that risk appetite could be hit if the situation remains unchanged at the open on Monday.
The vital shipping route had only just reopened on Friday, but it has since been shut again, underlining how quickly the situation is shifting. In Washington, Donald Trump says there have been “very good conversations” with Iran, but insists the US will not be “blackmailed” over the strait. There are also fresh security concerns at sea. A tanker and a container ship have both reported coming under attack off the coast of Oman, according to the UK Maritime Trade Operations centre. On Saturday, the US said it had turned away 23 vessels since launching its naval blockade on 13 April, a move Tehran continues to condemn as a violation of the ceasefire.
EUR/USD outlook: Technical analysis
The technical EUR/USD outlook has turned a little more cautious following Friday’s reversal around the key 1.1800–1.1850 area, which is where the initial selling began when the Middle East conflict started.
This is a level that needs to be reclaimed decisively for the market to establish a stronger bullish price action.
Should we go above that zone, the next bullish targets include the 1.1900 and then the 1.2000 handles.
However, the fact that we formed an inverted hammer candle on Friday does suggest at least a modest pullback in the bullish trend at the start of the week.
That said, as long as prices remain above the former resistance levels that have now turned into support — including the 1.1670–1.1675 area — the broader outlook remains constructive. This 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.
Ultimately, this is a level-to-level market, given that we are trading within a wide range. The best approach here is to move from one key level to the next and focus on opportunities as they arise.
What factors could influence EUR/USD outlook in the week ahead?
US-Iran ceasefire deadline amid weekend re-escalation
The deadline for the current ceasefire is set to expire on Wednesday, April 22 at 22:00 EDT (03:00 BST, Thursday). High stake peace talks between officials from Iran and the U.S. took place in Islamabad last week, ending in no deal. Fresh indirect talks then resumed started, and markets surged on hopes of a permanent deal. Hopefully we could see an end to the conflict, not a breakdown in negotiation. But the weekend events didn’t look too promising.
European PMIs are among key data highlights
These will be released on Thursday, April 23 between 08:15 – 09:90 BST. 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.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
