EUR/USD is positioned between 1.1770 and 1.1782, reflecting a decline of 0.19% to 0.24% during the session. This follows an impressive eight-day winning streak that propelled the pair from the 2026 low of 1.1410 to a weekly high of 1.1825, marking its most robust level since the escalation in the Middle East commenced in late February. The reversal may not be significant in absolute terms, yet the context lends it importance: an uninterrupted series of eight sessions of gains without any decline is an exceptionally prolonged streak for a major currency pair. The pause at the 1.1810 to 1.1825 resistance level is occurring exactly where the technical framework indicated it would. The U.S. Dollar Index has rebounded to 97.992 to 98.25, recovering from an intraday low of 97.83 — close to its six-week lows — amid a cautious geopolitical atmosphere following Hegseth’s Pentagon press conference on Thursday reinstated a degree of defensive dollar demand that had been gradually diminishing since the ceasefire announcement made last weekend. The distance between 1.1410 — where EUR/USD bottomed earlier this year — and 1.1825 signifies a recovery of 415 pips in a notably short period, a movement that has completely reversed all of March’s losses and more. The critical near-term inquiry in the G10 currency arena revolves around the movements between 1.1770 and 1.1800. The outcome hinges on three competing influences: the evolving U.S.-Iran diplomatic landscape, expectations surrounding ECB policy, and a Federal Reserve caught in a dilemma between managing inflation and addressing a weakening economy.
The decline of the USD that propelled EUR/USD from 1.1410 to 1.1825 was not indicative of a fundamental change in U.S. economic conditions — rather, it was a recalibration of geopolitical risks. Following the announcement of the Iran ceasefire last weekend, oil prices began to pull back from their recent peaks, leading to a swift unwinding of the safe-haven dollar demand that had accumulated during weeks of escalating tensions in the Middle East. MUFG described the shift accurately in a client note, referring to it as a “repositioning phase” influenced by diminishing safe-haven demand rather than any significant decline in U.S. economic conditions or expectations regarding Fed policy. ING emphasized that perspective, highlighting that the dollar’s geopolitical rebound “lacked follow-through” as markets swiftly reversed long dollar positions when risk appetite improved. This is an important differentiation: the selling of USD in this instance was a mechanical unwinding of defensive positioning, rather than a fresh strategic choice to reduce exposure to dollar assets. The dollar found stability on Thursday as Hegseth reintroduced the risk of military escalation into the discussion — 13 ships were turned back from Iran, forces were described as “locked and loaded,” and bombs were threatened if Tehran “chooses poorly.” The language did not lead to a significant dollar rally; however, it was sufficient to halt the decline and stabilize DXY at 97.99 after reaching a low of 97.83. The 97.83 intraday low is a critical level to monitor: it signifies the threshold between a managed consolidation phase and a potential substantial dollar decline. A sustained close below 97.83 on the DXY would likely drive EUR/USD back through 1.1800 and toward 1.1850. A recovery above 98.50 on the DXY reinstates the potential for 1.1700 in EUR/USD — a level that ING has identified as a plausible correction target in response to negative developments.
The fundamental case for EUR gained considerable strength following the revised Eurozone inflation data released on Thursday. The Harmonized Index of Consumer Prices for March has been adjusted to 2.6% year-over-year, an increase from the preliminary estimate of 2.4%, marking the highest level since July 2024. In the latest monthly report, HICP experienced a notable rise of 1.3%, marking a significant acceleration from February’s increase of 0.6% and surpassing the preliminary estimate of 1.2%. Core inflation, excluding energy, food, alcohol, and tobacco, registered at 2.3% year-over-year, a slight decrease from February’s 2.4%. This modest easing offers the ECB some leeway regarding timing, yet it does not alter the broader inflationary landscape developing within the bloc. The increase in the headline figure from 1.9% to 2.6% within just one revision cycle is notable and illustrates the significant impact the Hormuz-driven energy shock is having on European price dynamics. Energy stands as the main catalyst propelling headline inflation to its peak since July 2024. With Dated Brent exceeding $120 per barrel in the physical market, while futures hover around $94.91, the potential for additional energy price impacts on Eurozone CPI in the upcoming months is significant. The financial markets have reacted to the data by nearly fully incorporating a first 25-basis-point ECB rate hike by June — a significant shift in expectations compared to just weeks prior when the ECB’s stance was clearly on hold. Discussions are also underway regarding a second hike in 2026. The ECB’s deposit facility rate is presently at 2.00%, with the consensus for a June hike suggesting an increase to 2.25% — a relatively modest adjustment that nonetheless conveys strong signals regarding the ECB’s readiness to tighten policy in response to an energy-driven inflation shock, despite economic pressures. ECB President Christine Lagarde has employed measured language, indicating that the institution must stay “completely agile” regarding rates while clearly emphasizing there is “no bias toward tightening.”
ECB policymaker François Villeroy de Galhau expressed a clear stance on Thursday, stating that it is “premature to focus on a rate hike at the April meeting” and emphasizing that the ECB requires “a critical mass of data before taking action.” The April meeting is thus highly likely to be postponed. June is the month when the decision is finalized — and the updated 2.6% CPI figure significantly complicates the argument against taking action in June. On Thursday, ECB speakers Joachim Nagel and Philip Lane will be addressing the inflation trajectory and the timeline for the first hike, which will serve as the next significant catalyst for the EUR to monitor. The technical landscape for EUR/USD presents a compelling Elliott Wave configuration within the G10 arena at this moment. The price divergence observed between EUR/USD and the DXY on March 31 served as an initial indicator: the DXY achieved a new price extreme on that date, whereas EUR/USD failed to validate the downward movement — a textbook example of non-confirmation that suggests trend exhaustion and often foreshadows substantial trend reversals. The subsequent eight-day rally of 415 pips has confirmed that divergence. According to the Elliott Wave analysis, EUR/USD seems to be advancing in wave iii of (iii) — representing the strongest and most extended segment of an Elliott impulse sequence. Several wave relationships align closely around 1.1820, with the pair touching 1.1811 this week before encountering resistance — exactly at the 1.618 Fibonacci extension of wave i, which intersects near 1.1820. That is not a coincidence. Upon reaching a significant Fibonacci extension target, particularly in what seems to be the third wave of a third wave, the typical scenario is a consolidation or a brief pullback prior to the commencement of the subsequent upward movement. If wave iii concludes in the range of 1.1810 to 1.1820, the following wave iv correction would be viewed as standard, retracing towards 1.1700 — a target also noted, reinforcing the significance of the 1.1700 level as crucial support to maintain. Upon the completion of wave iv near 1.1700, wave v of the larger (iii) is projected to aim for the 1.20 region — a target that Bank of America has predicted for the EUR/USD by the end of 2026, and that Societe Generale has identified as a buying opportunity in the upcoming months.
The bullish structure is fully preserved as long as EUR/USD stays above the wave i support high at 1.1627. A decline below 1.1627 negates the bullish Elliott count and necessitates a thorough reevaluation of the short-term directional outlook. The movement of USD/JPY approaching 159 on Thursday serves as a significant indicator for analyzing the dynamics of EUR/USD. The current JPY weakness at 159 illustrates the dual impact of U.S.-Iran diplomatic optimism, which has diminished the demand for the safe-haven yen, alongside the ongoing policy divergence between the Bank of Japan, which is progressing very slowly towards normalization, and the Federal Reserve, which remains on hold yet continues to operate at considerably higher rate levels than the BOJ. The dollar’s appreciation against JPY, coupled with its decline against EUR, presents a complex scenario: this is not a widespread dollar surge fueled by U.S. economic robustness. The current dollar recovery is selective, with currencies supported by hawkish central banks, such as the EUR, which has nearly fully priced in a June ECB hike, maintaining their positions. In contrast, currencies associated with ultra-accommodative central banks, like the JPY, are losing ground against the USD. The distinction is significant for the EUR/USD trajectory as it indicates that EUR strength is underpinned by a tangible factor — the ECB’s inflation-driven policy shift — rather than merely benefiting from dollar weakness. When EUR maintains its position above 1.1770 while DXY rebounds from 97.83, the pair is showcasing authentic fundamental backing from the Eurozone, rather than merely reflecting dollar selling.