EUR/USD concluded the week at approximately 1.1603, reflecting a notable decline from the late February peaks near 1.18. That represents a shift of approximately 177 pips in less than two weeks — not a slow movement but a decisive repricing influenced by one prevailing factor: the U.S. dollar’s appeal as a safe haven in light of the Iran war and the ensuing energy crisis. The dollar index recorded its most significant weekly increase in over a year, finishing close to 98.85. Every major currency pair involving the dollar has felt that compression, but the euro’s vulnerability is structural in a way that makes the current setup particularly dangerous for anyone holding long EUR/USD positions. The pair is currently dancing on the 200-day exponential moving average, while also residing within a crucial support zone that extends from 1.16 to 1.15. That zone is not merely a theoretical technical level — it represents the price range where the market has consistently identified buyers on several occasions. The current inquiry revolves around whether those buyers will reemerge or if the support will wane under the pressure of $90 crude, a stagnating U.S. economy, and a European Central Bank navigating the challenges of combating energy-induced inflation while safeguarding growth. The response to that inquiry will dictate if EUR/USD stabilizes at present levels or initiates a shift toward 1.13 — Morgan Stanley’s significant disruption target. Morgan Stanley has structured the EUR/USD outlook around three distinct energy supply scenarios, and the framework is significant because it directly correlates with the only variable that truly matters at this moment: the duration of the effective closure of the Strait of Hormuz. In a scenario where a near-term resolution is achieved — characterized by a swift de-escalation of the U.S.-Israel-Iran conflict — the dollar index is projected to experience a 0.6% retracement from its current levels, while EUR/USD is expected to rise back toward 1.18. Central and Eastern European currencies — the Polish Zloty, Hungarian Forint, and Czech Koruna — stand to gain significantly from this risk-on rotation, expected to outperform as the geopolitical risk premium diminishes.
The middle path — referred to by Morgan Stanley as “managed escalation” — closely resembles the existing market landscape. Brent crude is trading close to $90 per barrel, the VIX is slightly above its current reading of 29.49, and there is only marginal dollar weakness alongside modest gains for risk-sensitive currencies. In this scenario, EUR/USD and the Swedish Krona experience steady yet limited appreciation, while conventional safe havens such as the Japanese Yen and Swiss Franc fall short of expectations. This market is fundamentally characterized by a sideways grind — it poses challenges for trend traders, incurs high carry costs, and remains unresolved in the absence of a definitive directional catalyst.The severe disruption scenario represents the true downside risk for EUR/USD. If energy supplies are further constrained — with Gulf producers declaring force majeure, the Strait of Hormuz remaining largely closed for an extended period, and Goldman Sachs’ projections of oil prices exceeding $100 coming to fruition — the dollar strengthens, European major companies face significant challenges, and the EUR/USD declines by 2.1% towards the 1.13 level. Morgan Stanley identifies the Swiss Franc as the primary beneficiary in that environment, while commodity-exporting currencies like the Canadian Dollar and Norwegian Krone see only marginal gains. The Swedish Krona stands out as the most notable underperformer among the G10 currencies, while the PLN and HUF are expected to spearhead losses in the CEE region. Rabobank has revised its one-month EUR/USD forecast down from 1.17 to 1.16 this week — a seemingly small adjustment, yet one that conveys a significant cautionary message. The bank’s analysis revealed that the dollar’s recent strength is largely attributed to safe-haven dynamics rather than being fundamentally driven by data. The distinction is significant: safe-haven flows remain robust while uncertainty lingers but can shift dramatically once it dissipates.
However, Rabobank is not predicting clarity — it is predicting prolonged disruption. If the Hormuz closure extends beyond a few weeks, the bank anticipates further dollar gains, with focus turning to the November low near 1.1469 and the 1.14 area as the next significant support zone. The Eurozone’s specific susceptibility in this context cannot be emphasized enough. The region relies heavily on energy imports. Increased oil and natural gas prices lead to broader current account deficits, elevated headline inflation, and a simultaneous downward pressure on consumer spending. Rabobank anticipates that eurozone inflation will average around 2.4% in 2026, an increase from earlier forecasts, with the result significantly influenced by how long the current supply disruption lasts. An inflation rate of 2.4% in a context where growth is stifled by energy costs places the ECB in a challenging dilemma: increase rates to combat inflation and stifle growth, or maintain rates and observe the euro weaken further as the Fed eventually shifts its stance. The technical setup on EUR/USD illustrates a fundamental policy divergence that has been developing for weeks. The Federal Reserve, in light of Friday’s alarming -92,000 nonfarm payrolls report and an increase in unemployment to 4.4%, is anticipated to maintain rates at its March 18 meeting. Fed Fund Futures indicate about a 50% chance of the first rate cut occurring in June. This timeline has changed significantly following the jobs report, yet it is still limited by $90 crude oil, which exerts inflationary pressure that the Fed cannot overlook. The crucial information that will further alter that timeline is set to arrive next week: the February CPI report on Wednesday and Core PCE on Friday.
The ECB encounters a symmetrical challenge, albeit with more unfavorable initial circumstances. European growth was already precarious prior to the Iran conflict, which caused energy prices to soar. The ECB faces a critical decision: should it prioritize inflation, which is being driven upward by oil prices, or focus on growth, which is being stifled by the same energy shock? Christopher Lewis pointed out this divergence clearly: “questions about what the ECB is going to have to do about rising energy prices in order to stimulate the economy while the Federal Reserve is likely to still be a little bit on the sidelines.” When a central bank is considering stimulus while another is contemplating whether to hold or cut, the currency of the institution considering stimulus tends to weaken. The EUR/USD setup can be summarized in one sentence. The daily chart on EUR/USD clearly outlines the stakes involved. The pair is currently testing the 200-day EMA, positioned within the 1.15 to 1.16 support zone — a level that has proven resilient during several prior attempts. The critical level to monitor is 1.15 on the downside. A decisive break and daily close below 1.15 paves the way for a move toward 1.11 — a decline of approximately 400 pips from current levels. That is not a marginal situation; it is the direct technical outcome of losing the one structural foundation that has prevented a more profound collapse.
While there may be potential for rallies from current levels, they should not be taken at face value. Any bounce toward 1.17 to 1.18 should be viewed as a selling opportunity in the current environment. The ceiling remains clearly established, and the macroeconomic factors propelling dollar strength — energy inflation, safe-haven flows, Fed policy uncertainty, and Eurozone structural vulnerability — have yet to change direction. Rabobank’s updated target of 1.16 signifies a recognition that the pair is currently trading at the bank’s anticipated level, indicating that the risk is tilted towards the downside rather than the upside moving forward. Beyond the immediate technical battle, the November 2025 low at 1.1469 stands as the next significant technical reference beneath current levels. A break there eliminates the final clear support before 1.14 — the next significant support zone identified by Rabobank — while Morgan Stanley’s severe disruption scenario sets a target of 1.13 as the floor should the energy shock intensify. The range from 1.14 to 1.13 thus signifies the most unfavorable scenario should the macroeconomic landscape worsen further. The strength of the dollar is not solely a narrative concerning the euro; rather, it represents a wider trend regarding the USD. Analyzing adjacent currency pairs reinforces this directional conviction. USD/CAD has not managed to achieve a weekly close above the significant resistance level at 1.3725/1.3733 for the second week in a row. The resistance zone — characterized by the yearly open, the 38.2% retracement of the November decline, and the 2023 swing high — has constrained the pair on two occasions, indicating that although the dollar is generally strong, it lacks the strength to consistently break out against commodity currencies. Support for USD/CAD is positioned at 1.3617, reinforced by the 61.8% retracement of the February rally at 1.3586. A decline beneath 1.3586 would reinstate the overarching downtrend in USD/CAD — which, intriguingly, would indicate that the dollar is weakening against oil-linked currencies while simultaneously strengthening against European ones. The observed divergence aligns with the ongoing oil shock: Canada reaps the rewards of elevated crude prices, while the Eurozone does not share in this benefit.
AUD/USD remains constrained beneath 0.7150, failing to maintain momentum above that threshold, even in light of the Reserve Bank of Australia’s recent rate hike, while the Fed is anticipated to implement cuts. The duo’s failure to ascend further, even with a fundamentally favorable rate differential, indicates that the prevailing risk-off climate and the dollar’s appeal as a safe haven are overshadowing the argument for policy divergence. A decline below 0.69 would position AUD/USD in a distinctly bearish stance. The Australian dollar’s behavior acts as a real-time indicator of the recovery of global risk appetite — and at this moment, it is not recovering. The evidence strongly indicates a bearish outlook for EUR/USD. The pair is currently trading at 1.1603, positioned on the 200-day EMA within a support zone that may prove unsustainable. The macro backdrop — $90 crude hitting Europe harder than the U.S., a Fed on hold while the ECB considers stimulus, a dollar index at its strongest weekly gain in over a year, and a Hormuz disruption that Goldman Sachs warns could send oil to record highs — creates a combination of pressures that the euro’s fundamental picture cannot withstand. Rabobank aims for a target of 1.16 within one month, with potential downside risks to 1.1469 and subsequently to 1.14. Morgan Stanley’s severe disruption scenario indicates a figure of 1.13. The technical chart indicates that a break below 1.15 opens the possibility for 1.11. The strategy is straightforward: sell on rallies approaching 1.17 to 1.175, placing a stop loss above 1.18, with a primary target set at 1.14 and a secondary target at 1.13 should the situation in Hormuz worsen. The sole situation that alters this thesis is a swift, credible ceasefire in the Iran conflict that dismantles the oil risk premium and causes safe-haven dollar flows to reverse. That scenario brings EUR/USD closer to 1.18. Until there is concrete evidence of de-escalation — not tweets, not signals, but actual cessation of hostilities — every EUR/USD bounce presents an opportunity for those on the short side.