The euro is experiencing a subtle decline. EUR/USD is hovering around 1.1619 — technically alive, but just barely — as a mix of geopolitical shocks, energy repricing, and changing Fed expectations is impacting it from all sides at once. The pair concluded the week at around 1.16185, positioned precariously near a support zone that has remained intact for most of the year. The critical question for currency traders at this moment is how long that floor will hold. That $1.1500 level is not merely a round number — it signifies almost 12 months of price memory, a zone where buyers have consistently intervened and supported the euro. Last week’s low approached the testing point quite closely. The issue at hand is that the macroeconomic environment has fundamentally changed since that level of support was set. At the time $1.15 became entrenched as a floor, the geopolitical risk premium on European energy was significantly lower than it is now. Currently, with WTI crude soaring beyond $90 per barrel — almost double its value from just weeks prior — and European natural gas prices escalating due to the near-total disruption of Qatari LNG exports, the euro area’s terms-of-trade are declining at a rate that warrants a lower equilibrium rate for EUR/USD. Morgan Stanley has outlined a particular figure regarding the downside scenario: an extended disruption in the oil sector could lead to a revaluation of EUR/USD towards a 1.13 support level. That’s not a tail risk — it’s the base case if this conflict continues for the six weeks that many strategic analysts are currently estimating.
The joint US-Israel strike that initiated the conflict surprised markets not due to its occurrence, but rather because of its scope. The initial attack resulted in the death of Supreme Leader Khamenei, indicating from the outset that this is an operation aimed at regime change, rather than merely a restricted punitive action. That distinction is of great significance for FX markets. A limited strike would have resulted in a one-session surge in the dollar followed by a swift turnaround. Regime change in Iran indicates weeks of ongoing disruption, and markets have adjusted to that — WTI reaching $90+ with experts discussing whether $100 is unavoidable before this concludes. Traffic through the Strait of Hormuz has decreased by about 70%. This one statistic accounts for the complete movement of the EUR/USD. Europe imports approximately 27% of its oil via that corridor, and its reliance on LNG — a significant portion of which passes through the same area — creates an asymmetric energy shock. The US exhibits a degree of insulation. Europe is not. Deutsche Bank stated clearly: the euro’s vulnerability to this conflict is “one factor: energy.” The structural asymmetry is persistent, not fleeting, and it is the reason EUR/USD remains under pressure even on days when the dollar isn’t generally in demand. The institutional signal is more evident than what the spot price movement indicates. The Invesco CurrencyShares Euro Trust recorded a $10.89 million outflow on February 26, 2026 — representing 2.34% of its $464.88 million in AUM in a single session. That is not mere retail chatter. That is a calculated decrease in euro exposure by funds that are interpreting the macro environment accurately. Observing a 2.34% single-day redemption from a currency ETF that operates without leverage indicates a strategic choice to lessen exposure rather than an impulsive sell-off. The timing — occurring before the peak of the oil shock — indicates that these flows were influenced by expectations regarding rate differentials and concerns about EUR growth that emerged prior to the complete geopolitical crisis. The one-day technical sell signal on EUR/USD validated the insights indicated by the FXE flows.
Six weeks ago, the story was straightforward: the Fed reduces rates, the ECB maintains its stance, and the euro gains strength. The playbook has been discarded. The CME FedWatch tool is presently indicating a single rate cut for the entirety of 2026 — a 25 basis point decrease anticipated in September — following US Average Hourly Earnings reported at 0.4% month-on-month, surpassing expectations of 0.3%, thereby strengthening the “higher for longer” perspective within the FOMC. Indeed, the Non-Farm Payrolls figure came in around 150,000 jobs short of expectations, and the unemployment rate rose unexpectedly from 4.3% to 4.4% — both indicators that typically lean towards further easing. However, the ISM Services PMI exceeded expectations, and the inflation risk driven by oil now complicates any simple easing narrative. The market is largely stagnant regarding Fed cuts. On the ECB side, policymaker José Luis Escriva emphasized a meeting-by-meeting approach, indicating no prior commitment to cuts. The ECB finds itself in a challenging situation: rising energy prices are poised to push headline inflation above the target, all the while severely impacting growth in the euro area. Lowering rates only adds fuel to an inflationary blaze ignited by $90 oil. Maintain rates and you stifle an economy that is already under pressure from an energy shock. There is no straightforward answer here, and EUR/USD will reflect that uncertainty as a negative premium on the euro until clarity comes to light.
The chart clearly indicates the implications of a break at $1.1500. There is no significant technical support until around $1.1300. That’s not a minor correction — from current levels of 1.1619, a break to 1.13 would represent roughly a 2.7% decline, significant in currency terms. The MUFG framework clearly indicates that terms-of-trade shocks lead to a rapid decline in EUR/USD when energy prices increase. The pair has experienced a decline throughout March and is currently positioned near the lower boundary of its recent range, significantly below the late-February levels that exceeded 1.17. The slight increase to the low-1.16s observed this weekend represents a technical consolidation rather than a reversal of the trend. The USD Dollar Index displayed a significant bullish candlestick last week, opening with a gap higher — this price action indicates true directional conviction rather than mere noise. The US Dollar emerged as the strongest major currency last week. The Euro exhibited the most significant weakness. Directional volatility heightened, as 41% of all major pairs and crosses shifted more than 1% — a statistic that emphasizes the significance of last week’s movements in a historical framework. The week of March 9-13 is packed with potential catalysts for EUR/USD. US CPI is the marquee release — in the context of 90+ crude, any upside surprise in inflation completely undermines the September rate cut the market is currently pricing, which would drive the dollar significantly higher and break the 1.15 support in EUR/USD with conviction. The US Core PCE and Preliminary GDP contribute to the overall analysis. On the European front, the release of German Factory Orders and German Industrial Production on Monday will provide the initial concrete insights into the impact of the energy shock on the industrial core of the euro area. German industrial data has shown consistent disappointment for 18 months; yet another weak reading adds to the challenges facing the euro.
Sentix Investor Confidence, the Eurogroup meeting, and NFIB Small Business Index in the US conclude a week where unexpected data can shift the pair by 100-150 pips on any given day. MUFG’s framework looms large: should oil and European gas prices remain high or increase further, the euro’s vulnerability persists, irrespective of the data presented. At present levels, there is no compelling argument for the euro that does not depend on an abrupt and lasting easing of tensions in the Middle East and a significant decline in energy prices. Neither is on the horizon. The conflict is mere weeks from any potential resolution — assuming a resolution materializes at all before a complete regime collapse in Tehran. The Strait of Hormuz blockade, with traffic reduced by 70%, will not be reopening this week. The exposure to energy in Europe is fundamentally ingrained. The ECB is currently immobilized. The Fed’s stance is more aggressive compared to what was anticipated six weeks prior. Institutional money is clearly shifting — $10.89 million out of FXE in a single session is a clear indication, not a coincidence. EUR/USD presents a selling opportunity on any rebound towards 1.1650-1.1700. The path of least resistance is toward 1.1500. If that level breaks with any conviction — particularly on a hot US CPI print or a further escalation in the Strait of Hormuz situation — 1.1300 becomes the next significant topic of discussion. Position sizing must take into account the volatility: 41% weekly directional moves exceeding 1% across major pairs indicate that stop distances should be broader than usual. However, the path is evident. The dollar is benefiting from favorable conditions, while the euro faces challenges from energy prices, and this disparity is reflected in the trading of EUR/USD.