EUR/USD Weekly Forecast: Iran war to keep shaping the market’s sentiment
|- Major central banks refrained from acting but turned hawkishly vigilant on inflation.
- The Middle East war continues to disrupt energy supplies, with no end in sight.
- EUR/USD bearish case remains firm in place despite the latest bounce.
The EUR/USD pair bounced back in the last few days, settling for the week around 1.1530. The Iran war and central banks’ monetary policy announcements took centre stage, yet none was enough to impress speculative interest.
Middle East energy crisis intensified
In the last few days, markets were particularly affected by two events. Early in the week, the United States (US) launched a massive attack on Iran's Kharg Island, the major Iranian oil hub. US President Donald Trump claimed they did not hit the oil infrastructure but military bases, while Iran later reported crude facilities remained intact. Nevertheless, oil prices gapped higher at the opening, with the barrel of West Texas Intermediate (WTI) flirting with $100.
Moving forward, news from Qatar on Thursday indicated that two out of 14 of their LNG trains and one out of two of their gas-to-liquids (GTL) facilities were damaged in Iranian attacks. As a result, the country will be losing 12.8 million tons of LNG per year for three to five years, around 17% of Qatar’s export LNG. Finally, the country claimed it may have to declare force majeure on long-term LNG supply contracts to different European and Asian countries.
Such headlines are disruptive beyond near-term commodities’ prices. Shortage of energy to keep economies alive and kicking is under siege. Much higher inflation, if the war continues, is a certainty.
Central banks on a hawkish alert
And indeed, central banks are well aware of what economies would face should the Iran war continue. Almost all major central banks announced their monetary policy decisions, all converging in keeping interest rates on hold and warning of the risks of higher inflation translating into higher interest rates.
The Federal Reserve (Fed) kept its Fed Funds Target Range (FFTR) unchanged at 3.50%–3.75% as expected, noting, in the accompanying statement, that “uncertainty about the economic outlook remains elevated,” as well as the implications of the Middle East war. Officials upwardly revised their inflation perspectives, but also lifted their growth forecasts, noting that “available indicators suggest that economic activity has been expanding at a solid pace.”
Chairman Jerome Powell later reinforced the idea by stating that the economy is expanding, but again warned about inflation. He even took a step further and acknowledged that the current higher inflation is the consequence of President Donald Trump’s tariffs, adding that some policymakers have shifted towards fewer rate cuts.
Across the pond, the European Central Bank (ECB), in a unanimous decision, left the interest rates on the main refinancing operations, the marginal lending facility and the deposit facility at 2.15%, 2.4% and 2%, respectively, also meeting the market’s expectations. The monetary policy statement showed that the outlook has become “significantly” more uncertain due to the war in the Middle East, creating upside risks for inflation and downside risks for economic growth.
President Christine Lagarde dropped the “good place” when referring to the ECB’s stance on monetary policy, noting policymakers are now “well positioned and well equipped to deal with the development of a major shock,” also noting they are ready for an “agile” response.
The hawkish lean was quite notorious among policymakers worldwide, with interest rate hikes conditioned to the extent of the war. And the war is nowhere near ending. Headlines on Wednesday indicated that the White House is seeking for $200 billion more for the war in Iran, as President Trump wants “vast amounts of ammunition,” partially depleted by the US contribution to Ukraine. Just in the first week, the war cost 11.3 billion. The conflict is now extending into its fourth week.
Currencies barely reacted to central banks’ headlines and announcements, as there were no surprises there.
Quiet data docket, busy policymakers week
There were some quite notorious pieces of data out there. The German ZEW survey showed that Economic Sentiment collapsed in March, with the index down to -0.5 and to -8.5 in the Eurozone from 58.3 and 39.4, respectively, in February. The assessment of the current situation edged lower to -62.9 from the previous -65.9. The report indicates fears about the war's consequences are widespread.
Additionally, the US reported that the Producer Price Index (PPI) surged to 3.4% YoY in February, while the core annual reading printed at 3.9%, up from 2.9% and 3.5%, respectively, fueling inflation-related concerns ahead of the Fed’s announcement.
The macroeconomic calendar will include the European Union (EU) March Consumer Confidence on Monday, and the March S&P Global preliminary Purchasing Managers’ Indexes (PMIs) for the Euro bloc and the US on Tuesday.
A myriad of Fed speakers will be on the wires throughout the upcoming days, while some ECB members are also participating in public events. Their words will be closely followed for hints on the future of monetary policy.
a certainty
From a technical point of view, the weekly chart shows that EUR/USD is neutral-to-bearish. The pair develops below the 20-week Simple Moving Average (SMA) near 1.1700 while remaining comfortably above the rising 100- and 200-week SMAs clustered around 1.0900–1.1200, keeping the long-term bearish case limited. The Momentum indicator has turned flat below its midline, signaling softening buying pressure after the earlier advance. Finally, the Relative Strength Index (RSI) indicator hovers around 45, with limited downward strength, hinting at a loss of bullish conviction.
In the daily chart, EUR/USD is mildly bearish as spot holds below the gently descending 20-day Simple Moving Average (SMA) around 1.1625, which slides under the flatter 100- and 200-day SMAs clustered near 1.1689 and 1.1677, respectively, keeping the broader tone under pressure. The Momentum indicator advances within negative levels, while the RSI indicator turned south at around 42, all of which reflects easing selling pressure but remains far from suggesting an upcoming advance.
Initial resistance emerges at the 20-day SMA near 1.1625, with a break above exposing the longer moving averages around 1.1680. Further advances seem unlikely at this point and the area should cap advances to maintain the bearish trend in place. On the downside, immediate support sits at the recent low around 1.1411, where prior price rejection aligns with the RSI rebound and could attract dip buyers. A decisive drop below 1.1400 would reopen the downside and extend the prevailing bearish phase, with investors then aiming for a test of 1.1300, the next psychological threshold.
(The technical analysis of this story was written with the help of an AI tool.)
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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