EUR/USD commenced 2026 at a year-to-date peak of 1.2085 in January. Currently, it is positioned between 1.1465 and 1.1507 on Thursday, March 19 — reflecting a decrease of about 5.1% over the past three months, with no signs of deceleration in this trend. The pair experienced a decline exceeding 0.8% on Wednesday, subsequent to the Federal Reserve’s decision, reintroducing a bearish sentiment into the prevailing narrative. During Thursday’s session, EUR/USD experienced a 0.16% increase, approaching 1.1470 in the early European hours as the dollar retraced slightly from Wednesday’s gains. However, this rebound appears superficial — the dollar index remains close to its recent peak of 100.54, recorded last week, trading at 100.15 on Thursday morning following a close near 100.19 the previous day. The prevailing trend for EUR/USD since January has been downward, characterized by a bearish structure, with all technical and macro indicators affirming this direction. The 52-week range for EUR/USD spans from a low of $1.0471 to a high of $1.2079. The pair is presently positioned in the lower third of that range, having been unable to maintain any of the significant levels during the decline. The descending 20-day Exponential Moving Average is positioned around 1.1600, significantly above the current price. The pair has consistently traded below this level, indicating a negative short-term trend following the rejection from the 1.19 region. The 14-day RSI at 35.00 has not managed to rise above the 40 threshold, allowing sellers to maintain their grip and indicating that bearish momentum continues to prevail. The change over the past year is recorded at -0.98%, yet this trailing figure significantly downplays the impact experienced in the last eight weeks following the onset of the Iran conflict, during which the dollar regained its status as a safe haven.
The DXY’s return to 100 is not merely a symbolic occurrence; it represents a mechanical compression affecting every dollar-priced asset, with EUR/USD experiencing this impact more acutely than most others. The dollar index experienced a 0.6% increase on Wednesday following the Fed’s decision, reaching a peak of 100.19 before stabilizing around 100.15 on Thursday. Since the Iran conflict erupted at the end of February, the dollar index has gained approximately 2.5%. A move of that magnitude in a currency index over three weeks indicates a significant realignment of global capital flows. The U.S. dollar has regained its position as the leading safe-haven currency, attracting demand from various regions at once: risk-off movements from equities, inflation-hedge movements from energy markets, and carry-trade movements from the rate differential. Provided the dollar index remains above 100, EUR/USD encounters significant resistance each time it seeks a substantial recovery. The relationship between the dollar’s present strength and the conflict in Iran is not coincidental — it is the prevailing narrative. Iran and Israel exchanging strikes on key energy infrastructure has pushed Brent crude to $111.87 a barrel, briefly touching $119.11 overnight. The price of oil exceeding $100 bolsters the dollar via several mechanisms: it heightens the demand for dollars as the preferred currency for oil transactions, it supports the Federal Reserve’s prolonged stance on interest rates by maintaining elevated inflation levels, and it indicates a risk-averse climate that has traditionally favored the dollar over the euro. The disparity between Eurozone and U.S. interest rates — with the ECB at 2.15% and the Fed at 3.75% — results in a 160 basis-point difference, rendering dollar-denominated assets consistently more appealing for those pursuing yield. The differential is unlikely to close in the near term, and each day it remains in place adds to the structural pressure on EUR/USD.
Wednesday’s FOMC decision maintained rates at 3.50% to 3.75%, aligning with widespread expectations. However, the accompanying message significantly undermined the near-term bullish outlook for EUR/USD. Before Powell’s press conference, markets were anticipating one rate cut by December 2026. The expectation has now been extended to October 2027 at the earliest, with CME FedWatch indicating a 75% probability that the Fed maintains its position throughout all of 2026. One Fed official is now openly forecasting a rate hike next year — a development that, six months ago, would have been regarded as a fringe opinion. Powell increased the 2026 inflation forecast from 2.4% to 2.7%, adjusted core inflation upward, and emphasized the term “uncertain” multiple times throughout his press conference. The communication regarding EUR/USD was clear: the Fed will not provide assistance. The prevailing environment is characterized by prolonged elevated rates, leading to an unavoidable outcome of dollar strength. The 10-year Treasury yield increased to a range of 4.2% to 4.3% after the decision, while the 2-year Treasury yield rose by 10 to 12 basis points, reaching between 3.77% and 3.9%. Increasing yields enhance the appeal of U.S. fixed income compared to Eurozone bonds, diverting capital flows from the euro. Morgan Stanley has adjusted its forecast for the Fed’s next rate cut to September, extending the timeline for easing by three months from its previous target of June. Goldman Sachs has also revised its expectations for cuts to a later date. Jack Ablin of Cresset Capital highlighted a “growing school of thought” suggesting that the Fed may refrain from making any cuts in 2026. Markets that had anticipated even a single cut must now adjust to zero, and this adjustment is the direct mechanism driving the decline of EUR/USD. This week, the structural challenges surrounding the euro’s rate differential have intensified, indicating that it has yet to reach its lowest point.
The European Central Bank maintained its deposit rate at 2% on Thursday, marking the sixth consecutive meeting without any adjustments, aligning with widespread market expectations at a 98% probability. President Christine Lagarde’s press conference underscored the ECB’s commitment to being data-dependent and cautious, highlighting that the Iran war has rendered the economic outlook “significantly more uncertain, creating upside risks for inflation and downside risks for growth.” The ECB staff has increased their 2026 inflation forecast from 1.9% to 2.6%, with core inflation now projected at 2.3% — a significant upward adjustment that eliminates any immediate justification for rate reductions. Several analysts had anticipated two ECB cuts in 2026; following Thursday’s developments, that expectation is undergoing significant revision. The interplay between a hawkish stance from the ECB and a hawkish hold from the Fed establishes a distinct dynamic for EUR/USD: both central banks are maintaining a tight policy, yet the Fed is adopting a tighter approach. The 160 basis-point interest rate differential between the U.S. (3.75%) and the Eurozone (2.15%) remains unchanged from this meeting — it continues to persist. While that gap remains and both central banks indicate a lack of urgency to act, the inherent tendency favors dollar-denominated assets over those denominated in euros. The ECB’s inflation upgrade, while structurally significant, does not bridge the divide — it affirms that both sides of the Atlantic are grappling with a similar energy-induced inflation issue, with the Fed’s more stringent starting position providing it with an interest rate edge that continues to impact EUR/USD. One potential ECB wildcard to consider: the central bank indicated an increasing willingness to discuss rate hikes if the conflict persists and energy prices remain high. The Bank of England indicated a notable shift on Thursday, voting unanimously to maintain its stance for the first time in 4.5 years as its previously dovish members adopted a more hawkish approach. The Swiss National Bank maintained its rate at 0%, indicating an increased readiness to engage in foreign exchange market interventions. These indicators reflect a changing policy environment; however, they currently lack the capacity to serve as a reliable near-term driver for EUR/USD appreciation.