EUR/USD forecast: Forex Friday | May 22, 2026

In what had been another choppy week dominated by contradictory geopolitical headlines surrounding the US-Iran conflict, stock markets have largely taken the more optimistic route, even though crude oil refuses to give back its large geopolitical risk premium built in. Wall Street trades near record highs thanks to a select handful of tech names doing all the heavy lifting, while Europe has been more measured. Meanwhile, stagflation concerns have continued to undermine the euro while the dollar finds consistent support from rising inflationary pressures in the US. This morning, a similar, choppy, trading was again the case. We maintain a cautious EUR/USD forecast heading into the weekend. The pair has been coming under pressure in recent days amid expectations that the economic consequences of prolonged high oil prices would weigh more heavily on Europe than on the United States. While the inflationary effects have already become visible, recent economic data increasingly suggests that the growth slowdown is now beginning to take hold across Europe as well.

 

 

Crude oil remains key factor for EUR/USD forecast

 

Thursday was another choppy session for crude oil as prices oscillated in wide ranges with traders responding to every single headlines. Some of those headlines turned out to be fake news and by the end of play more questions remained than answers, even if the two sides apparently narrowed their differences on many points. The main sticking points remain the Strait of Hormuz and uranium which Iran, understandably, doesn’t want to hand over to anyone. But with Trump’s insistence of taking the enriched uranium from Tehran somehow, it is difficult to see how the two sides will narrow their differences on these two important matters.

 

Markets are meanwhile getting tired of all these conflicting reports that have made trading certain markets close to impossible for many traders. They want to see real action now and not any more vague messages from Trump or fake headlines from certain news wires.

 

The only deal that looks possible is a temporary one, which could see the start of Hormuz reopen for a limited time as the two sides discuss a full agreement. But currently even that seems difficult to achieve.

 

But with the long weekend approaching for UK and US investors, we could see some de-risking again as traders will not want to be caught offside next week. This should keep the markets in a defensive mode today, barring a major breakthrough in negotiations. The EUR/USD is thus likely to remain under pressure.

 

Germany’s economic resilience should fade with oil spike

 

The German economy expanded by 0.3% quarter-on-quarter during the first quarter, showing a degree of resilience despite mounting geopolitical concerns and higher energy costs. For now, Europe’s largest economy has managed to avoid the immediate fallout from tensions in the Middle East, although the outlook beyond the near term appears considerably more fragile.

 

Rising energy prices should weigh on Germany’s economy as it remains heavily dependent on imported energy. While hopes had been building earlier in the year that fiscal spending plans focused on defence and infrastructure could help reignite growth momentum, confidence surrounding that recovery narrative has started to fade.

 

The more timely survey-based European data flow has also become less encouraging. This week’s PMI surveys pointed towards weakening business activity across the eurozone, reinforcing concerns that economic momentum is slowing sharply during the second quarter. That deterioration in activity is also beginning to reshape expectations for European Central Bank policy.

 

In recent weeks, investors have started to pare back their bets of ECB rate hikes. Markets had been pricing in almost 85 basis points of ECB tightening for the year a few weeks ago. Those expectations have now fallen closer to 65 basis points as investors reassess how aggressively the central bank can respond while growth conditions weaken, and stagflation concerns rise.

 

Technical EUR/USD forecast

 

 

From a technical analysis point of view, a sustained move below the 1.1570 support level could open the door for another test of 1.1500. At the same time, any meaningful progress towards a temporary deal may only offer limited support for EUR/USD until such a time that oil prices fall sharply again. Europe is still likely to face the lingering effects of the recent energy shock for several months, which could put a ceiling to near term rallies. To get past key  1.1800 resistance, this would most likely require a confirmed deal between the two sides.

 

In a nutshell

 

The combination of slowing activity and persistent inflation risks is creating a difficult backdrop for the ECB. Meanwhile if the Fed signals that it is now becoming more willing to tighten monetary policy again, the EUR/USD forecast could remain vulnerable against the dollar over the coming weeks.

 

Markets have already started to reflect this shift. The repricing of both Federal Reserve and ECB expectations has pushed the two-year EUR/USD real yield differential higher in recent weeks.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R