EUR/USD forecast: Trump’s peace plan likely to be resisted by Iran

 

It’s hard to see the EUR/USD finding much traction in the near term unless we get a genuine shift in tone from Tehran. At the moment, markets are being whipped around by every headline tied to the Iran situation. Positioning for a quick resolution feels premature. If anything, Iran appears content to let elevated energy prices strengthen its hand, which in turn keeps a lid on any meaningful upside in this pair. In other words, our EUR/USD forecast remains slightly tilted lower for the time being.

 

Latest from the Iran situation

 

Reports suggest Iran has received a 15-point proposal from the US, covering everything from sanctions relief to nuclear limits and access through the Strait of Hormuz. On paper, it looks constructive, but the messaging from Tehran tells a different story. Publicly at least, there’s little appetite to compromise. Officials have even suggested the US is “negotiating with itself,” while overnight activity indicates tensions remain very much alive, with continued strikes across the region.

 

There’s also a clear signal from Iran that it sees energy markets as leverage. The implication is straightforward: oil prices aren’t coming down anytime soon unless broader threats are lifted. That alone complicates the outlook for currencies like the euro, which is quite sensitive to energy shocks.

 

Dollar resilience still the dominant theme

 

Despite some tentative optimism in markets, fuelled by talk of potential ceasefire discussions. it feels too early to call a sustained move lower in the dollar. If anything, Iran’s leverage through energy markets arguably outweighs the military pressure coming from the US and its allies. As long as the Strait of Hormuz remains a risk point, the global growth backdrop stays fragile, with some economies already feeling the strain through fuel constraints.

 

With oil prices remaining high, expectations have shifted quite decisively about interest rates. Markets have now largely priced out any Federal Reserve easing this year. Inflation is expected to remain elevated the longer the conflict confines.

 

EUR/USD forecast still on uncertain footing

 

For the euro, it’s not exactly a comfortable spot to be right now. The European Central Bank is walking a fine line as markets are leaning towards an April hike, but policymakers are unlikely to fully commit to those expectations just yet.

 

Data-wise, we saw the German Ifo index take a bit of drop in March, but that was expected as surging energy prices dented business optimism. Whether the war in the Middle East will only delay or completely derail Germany's expected economic rebound remains to be seen, but the markets certainly think the risks have shifted to the downside.

 

Meanwhile, there’s not a great deal of data this week, though central bank commentary will be worth watching. While the latest PMI figures were mildly encouraging on the manufacturing side as we saw yesterday, the broader trend in business confidence remains under pressure. The longer this geopolitical situation drags on, the harder it becomes to build a constructive case for the euro in the short term.

 

EUR/USD technical analysis

 

In recent days, the EUR/USD has managed to recover alongside risk assets, after a sharp two-week decline. Last week, we saw a decent rebound, even as stock indices fell, with prices climbing back above the 1.15 handle and trading around 1.16 at the time of writing, retaining much of Monday’s gains following that Truth Social post by Trump that caused everything to rally.

 

 

Notably, the 1.16 level on the EUR USD chart previously acted as resistance, which triggered the decline seen during the second week of March.

 

This is now a key area that needs to be decisively reclaimed for euro bulls to gain more confidence that a bottom may be in place. If that happens, we will turn modestly bullish on the EUR/USD forecast from a tactical viewpoint.

 

Much will, of course, depend on developments surrounding US–Iran negotiations.

 

At a minimum, I would like to see a move above 1.1667 — the most recent high recorded on March 10. A decisive break above this level would establish a higher high and provide a more constructive technical signal for the market.

 

If that happens, we could see follow-through buying towards the next resistance zone between 1.1750 and 1.1800.

 

However, the outlook would turn negative again if prices fall back below the 1.15 level on a daily closing basis — especially if Monday’s low at 1.1485 is taken out.

 

In that scenario, a move back towards the low 1.14s would become likely, with further downside pressure potentially extending towards the low 1.10s.

 

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

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R