The primary influence on EUR/USD at this moment is geopolitics, which is directly impacting energy markets. The market currently reflects approximately a 60% likelihood of a US strike on Iran by 31 March. Meanwhile, Brent is trading within the $71–72 range, with potential to rise towards $75–76 if that probability approaches 100% and traders begin to factor in the risk of supply disruptions in the Strait of Hormuz. The likelihood of Hormuz being obstructed remains below 50% across various timeframes, indicating that a comprehensive energy shock is not entirely reflected in the pricing. The significance of that asymmetry cannot be overstated: elevated crude prices coupled with inadequate risk pricing create a classic bullish environment for the dollar, presenting a structural challenge for EUR/USD. This is primarily due to the euro area’s status as an energy importer, in contrast to the United States, which is considerably less vulnerable. The EUR/USD pair is currently positioned between 1.1750 and 1.1760, slightly above the recent monthly low of approximately 1.1740 and significantly below the earlier highs that exceeded 1.19 this year. Despite this adjustment, short-term fair-value models that concentrate on rates and equities continue to indicate that the pair is approximately 1% richer than the level suggested by fundamentals, assuming oil is disregarded. That indicates that a portion of the risk premium associated with Iran and energy remains absent. With crude already above $70 and geopolitical risk skewed towards further escalation, that valuation gap presents potential for further downside: a sustained oil move into the mid-$70s, coupled with increased strike probabilities, could realistically pull EUR/USD down into the 1.16 area.
The macro data on the USD side are supporting the trend. Initial jobless claims have recently decreased to approximately 206,000 for the week, down from around 229,000. This figure surpasses expectations of about 225,000, highlighting a tight labor market in the United States. The fourth-quarter GDP is projected to be in the range of 2.7–2.8% annualized, while core PCE inflation for December is anticipated to be approximately 0.3% month-on-month. The current mix does not align with the prospect of an imminent, aggressive cycle of rate cuts. Minutes from the recent FOMC meeting indicate that the majority of policymakers are at ease with maintaining current rates, while a limited number are beginning to contemplate potential cuts in the future. The markets have had to remove a significant portion of the previous easing expectations from the curve, and this repricing directly supports the dollar. The US dollar index is currently positioned around 97.9–98.0, slightly below a key resistance level at 98.08, following a rebound from recent lows near 95.54. The price has shown resilience, maintaining its position above the 0.618 Fibonacci retracement level at 97.61, which has now become a significant pivot point. The 50-period EMA on the 4-hour chart is positioned around 97.20, offering dynamic support, whereas the 200-period EMA is located higher at approximately 98.47, serving as the next significant resistance level. The RSI hovering near 60 suggests a sustained bullish trend while avoiding any extreme overbought scenarios. As long as DXY remains above 97.6–97.7, it is more probable that dips will be viewed as buying opportunities rather than aggressive sell-offs, creating a negative environment for EUR/USD.
On the EUR side, the data is not catastrophic; however, it fails to offset the underlying structural weaknesses. Flash eurozone composite PMIs are anticipated to be approximately 51.5, up from 51.3, suggesting a slight expansion, yet far from indicating a robust growth surge. Concurrently, expectations for rate cuts from the European Central Bank have been rekindled; the market is growing more confident in the notion that the ECB will initiate easing sooner and with greater decisiveness compared to the Fed. The interest-rate profile is a significant factor impacting the single currency, and when higher oil prices are considered, the situation becomes increasingly challenging. Each incremental $5 increase in Brent negatively impacts the euro area’s terms of trade and exacerbates the inflation-growth dynamic, representing a shock that adversely affects the EUR more than the USD. The dollar’s role as a safe haven has evolved from previous cycles; however, it continues to exhibit consistent behavior in response to energy-related shocks. When stress is driven solely by equities, capital flows may become fragmented among safe-haven currencies. In the context of stress induced by a crude spike and geopolitical risks in the Middle East, the United States appears to be relatively insulated in comparison to major net energy importers like the euro area and Japan. Consequently, both EUR and JPY typically exhibit weaker performance compared to USD during oil-driven risk-off scenarios. With oil already above $70, the implied probabilities of a US–Iran confrontation are elevated, and the risk in Hormuz is only partially priced in; this regime remains firmly established. The trend is evident in EUR/USD, which continues to decline despite eurozone PMIs remaining above 50.
From a technical standpoint, EUR/USD has breached a significant support cluster. The pair has declined beneath the 1.1780–1.1770 range, which previously aligned the 200-period simple moving average on the 4-hour chart with the 61.8% Fibonacci retracement of the upward movement from the January low. The region, in conjunction with the horizontal shelf slightly above 1.1800, has now become a point of resistance. The 50% retracement level is positioned around 1.1828, while 1.1806 represents a previous support level that has now become a resistance point. The 50-period EMA on the 4-hour chart is showing a downward trend near 1.1850, while the 200-period EMA is closely positioned just beneath that level, around 1.1800–1.1810. The 1.1780–1.1830 range represents a significant resistance area, where any upward movement is likely to encounter multiple layers of supply. Momentum indicators indicate that the movement has reached a mature stage, yet it may not be entirely complete. On intraday charts, the MACD continues to be positioned below its signal line and remains under zero; however, there is a noticeable narrowing in the negative histogram. The RSI for EUR/USD currently sits at approximately 29–30, indicating a formal oversold condition. In isolation, this would suggest a corrective recovery; however, the broader structure is more significant: the spot rate is trading below the 200-day SMA on the daily chart. Until the pair can reclaim and maintain a position above that average, rallies are more likely to serve as opportunities to add shorts rather than indicate a trend reversal. An oversold RSI in a strong dollar environment typically indicates “do not initiate fresh shorts at the exact low”, rather than “time to go long euro”.
On the downside, the primary support level is approximately 1.1742, which serves as the current floor near Thursday’s low of about 1.1740. A decisive move below that level paves the way to the subsequent zone around 1.1670–1.1675, aligning with a previous consolidation area and a calculated extension of the earlier range. If geopolitical risk escalates and crude oil firmly settles in the mid-$70s, the next logical target for EUR/USD is the 1.1600 area, where the pair would appear undervalued in comparison to short-term fair-value assessments. On the topside, the 1.1780–1.1806 area represents the initial resistance zone, succeeded by the 1.1828 retracement level. To put sellers on the defensive, it is essential to regain and maintain levels above 1.1830–1.1850, which includes a sustained break back above the 4-hour 200-period SMA and the 200-period EMA. Other markets are conveying a similar narrative. GBP/USD is currently positioned near 1.3470 on the 4-hour chart, having breached significant support at 1.3516 and falling below its established uptrend line from mid-January. The 50-period EMA close to 1.3600 and the 200-period EMA at approximately 1.3580 currently serve as resistance levels, reflecting the structural change observed in EUR/USD. The Canadian dollar demonstrates resilience, bolstered by elevated oil prices. As a commodity currency, CAD exhibits lower volatility and a direct correlation to crude, resulting in a more measured response compared to the EUR against the USD in the current environment. Currently, gold is trading above $5,000 per ounce and is approaching resistance near $5,100. This situation illustrates a typical risk scenario characterized by a robust dollar alongside strong bullion, influenced by geopolitical tensions and a reassessment of rate-cut probabilities.
The underlying fundamental imbalance continues to be clear-cut. The US economy is expanding at an annualized rate of approximately 2.7–2.8%, with jobless claims hovering around 206,000 and core PCE at about 0.3% month-on-month, providing the Fed with the opportunity to maintain its current stance. The market has had to adjust its aggressive easing expectations, and this adjustment is not yet fully evident in EUR/USD pricing. The euro area, in contrast, faces persistent low trend growth, increased sensitivity to energy fluctuations, and an ECB that market participants anticipate will pivot sooner. When the divergence in interest rates is coupled with an energy shock and apparent military escalation risks in the Middle East, the structural trend for the pair remains downward. Analyzing the current situation, EUR/USD operates in an environment where the dollar benefits from robust domestic data, a prudent central bank, and a reliable safe-haven status amid an oil-induced shock. Conversely, the euro faces limitations due to its reliance on energy and the potential for earlier rate cuts. The pair is currently positioned beneath a substantial resistance zone ranging from 1.1780 to 1.1830, situated below its significant intraday moving averages and in proximity to critical support levels at 1.1740 to 1.1742. Potential follow-through could occur at 1.1670 to 1.1675, with a possible extension towards 1.1600 in a scenario of full escalation. The prevailing outlook is negative, with any upward movements into the 1.1780–1.1830 range expected to be utilized for selling EUR/USD rather than establishing lasting long positions, especially as oil remains above $70, strike probabilities remain high, and US economic data continues to exceed expectations.