EUR/USD experienced an upward movement on Monday following a correction, trending towards 1.1759. Previously, the US dollar had somewhat recovered after last week’s drop, bolstered by a heightened demand for safe-haven assets due to the intensifying US-Iran conflict. Donald Trump stated that the US Navy engaged and detained an Iranian vessel in the Gulf of Oman after it did not adhere to directives while exiting the Strait of Hormuz. Tehran subsequently decided to forgo its plans to open the strait, following Washington’s inability to remove the blockade on Iranian ports. Iran has indicated its decision to abstain from participating in the second round of discussions.
The ongoing conflict is heightening risks to energy supplies, amplifying inflationary pressures, and diminishing the chances of policy easing. Markets are adjusting their outlook, as the likelihood of a Fed rate cut this year is decreasing. The baseline scenario currently anticipates that rates will stay the same in the upcoming months, probably extending through the conclusion of 2026. The H4 chart of EUR/USD indicates that the market is establishing a consolidation range near the 1.1800 level, presently extending down to 1.1737. An upward movement to 1.1790 appears probable. Following this, a decline towards 1.1700 may occur.
This scenario is validated by the MACD indicator, which shows its signal line above the zero level yet decisively trending downwards, indicating sustained bearish momentum and the possibility for the downward trend to continue. On the H1 chart, the market is developing the framework for the upcoming upward movement towards the 1.1790 level. Following the attainment of this level, a pullback to 1.1700 appears probable, succeeded by a potential ascent to 1.1745. This scenario is validated by the Stochastic oscillator, which shows its signal line positioned below 50 and trending decisively upwards towards 80.
EUR/USD has commenced the week with a favorable start; however, the outlook appears tenuous due to the recent intensification of the US-Iran conflict. The announcement of a naval incident in the Gulf of Oman by Trump, coupled with Tehran’s withdrawal from planned discussions and attempts to reopen the Strait of Hormuz, has heightened geopolitical risks. Concerns regarding energy supply are heightening inflationary pressures, leading to a delay in Fed rate cut expectations, with rates anticipated to stay unchanged until 2026. Although technical indicators indicate a potential short-term rebound towards 1.1790, the overarching bearish trend seems to remain in place. For any lasting strength in the euro, a true de-escalation of the conflict would likely be necessary.