EUR/USD forecast undermined as crude oil probes $100

The EUR/USD forecast has taken a hit in the last few days owing to the lack of any progress in the Strait of Hormuz situation. The popular pair has been hovering near the 1.1750 level for a few days now as markets weigh the impact of elevated oil prices. Trump’s decision to extend the ceasefire deadline on Iran has offered a degree of short-term relief, helping stabilise sentiment a little. However, elevated oil prices suggest investors are far from convinced that the situation is easing in a meaningful way. For the EUR/USD to find renewed support, this will depend on tangible progress around the Strait of Hormuz. Ceasefire doesn’t necessarily mean safe passage as oil tankers can’t take any risk. So, the blockade must be removed to prevent oil prices from going sharply above $100.

 

Oil prices and Iran tensions keep markets on edge

 

The persistence of high oil prices is a clearly holding investors back. This matters for EUR/USD forecast because the eurozone is especially vulnerable to energy shocks due to its reliance on imports. As long as oil remains elevated, it acts as a drag on the euro, limiting upside potential even when broader risk sentiment improves.

 

Recent economic releases have done little to bolster the euro’s case. The sharper-than-expected decline in ZEW sentiment indicators set a softer tone in the previous session, reinforcing concerns about growth momentum stalling amid the oil price situation. That said, such surveys can turn quickly if geopolitical tensions ease, so markets are hesitant to place too much weight on a single data point. Still, the underlying message is one of fragility, which keeps the EUR/USD somewhat constrained.

 

Attention now shifts to the upcoming PMI releases across the eurozone and the UK tomorrow. These figures will be closely scrutinised for signs of how rising energy costs are feeding through into business activity. Manufacturing, in particular, is exposed to higher input prices, which could squeeze margins and dampen output. Services may prove more resilient, but any broader slowdown would reinforce the view that the eurozone economy is vulnerable in the current environment.

 

ECB likely to remains patient despite inflation risks

 

The European Central Bank continues to strike a cautious tone. Policymaker Gediminas Simkus has reiterated that a rate hike in April is unlikely, although tightening later in the year remains on the table. Other Governing Council members have said similar things in the past. With limited data in the near term, attention is already turning to next week’s wave of central bank decisions, including the European Central Bank, US Federal Reserve, Bank of England, Bank of Japan and Bank of Canada. The ECB is widely expected to hold rates steady despite calls for a hike. It will be keeping its powder dry but undoubtedly signal readiness to act if needed. Markets have been pricing in the possibility of an insurance hike when the conflict first started but have since pushed back against those expectations. Still, depending on how inflation dynamics evolve, June might be a “live” meeting.

 

EUR/USD forecast: Dollar steady for now

 

On the US side, the picture is somewhat mixed. Strong retail sales and firm ADP payroll data point to underlying resilience, though the latter’s track record as a predictor of official employment figures is not great. With few additional indicators to confirm the strength, markets remain cautious and focused on the energy markets instead.

 

Looking ahead, the EUR/USD forecast hinges largely on geopolitical developments and energy prices. A credible de-escalation in the Middle East could ease oil pressures and provide the euro with room to strengthen. Conversely, any escalation would likely reinforce downside risks. For now, the pair appears set to trade within its prior ranges.

 

 

Resistance comes in at 1.1750 to 1.1800 area, followed by 1.1900. Support is seen at 1.1680, followed by 1.1605-1.1575 area.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R