EUR/USD Weekly Forecast: Fragile optimism pressures the US Dollar

The EUR/USD pair closed a third consecutive week with gains near a fresh peak in the 1.1840 area, reaching its highest since late February. A largely empty macroeconomic calendar kept the focus on Middle East developments, with risk-on taking over at the end of the week.

What’s going on in the Middle East?

There were a few facts and loads of uncertainty surrounding the Iran war. Facts are that the United States (US) and Iran agreed on a ceasefire, which expires on April 22. A similar 10-day truce between Israel and Lebanon was announced on Thursday. Both seem fragile and are subject to a long list of conditions. The Strait of Hormuz was suffering a double blockage, with only a few Oil vessels passing through.

Things changed by the end of the week, leading to soaring optimism and, hence, substantial US Dollar (USD) losses, on headlines indicating that Iran had fully reopened the Strait of Hormuz following the ceasefire in Lebanon. Tehran declared it will remain completely open for the remainder of the ceasefire, while US President Donald Trump thanked Iran on Truth Social. President Trump, however, also noted that the US naval blockade will remain in full force and effect as it “pertains to Iran only” until a deal is 100% complete, adding it should be a quick process as most of the points have already been negotiated.

Finally, Iran's State TV clarified that commercial vessels can pass through Hormuz through a certain route and with the permission of the Revolutionary Guards.

More talks between the US and Iran are coming over the weekend, following the failed negotiations in the previous one. US President Donald Trump claimed multiple times that the war can end “soon,” and markets seem to be just now believing it in part. Meanwhile, some Gulf Arab and European leaders believe a peace deal between the two nations will take approximately six months and urged both sides to extend the ceasefire to cover that negotiating window.

Nevertheless, Crude Oil prices are sharply down for the week, but still higher than before the war began. The barrel of West Texas Intermediate (WTI) hovers around $80, up from around $65 previous to the war, reflecting relief among speculative interest.

Economic impact of the war

Concerns about the consequences of the Middle East war on inflation remain high, despite data released over the last few days not being as terrible as expected, and the recent positive developments.

The Eurozone published the final estimate of the Harmonized Index of Consumer Prices (HICP), which was revised to 2.6% YoY, above the anticipated 2.5% yet above the 1.9% posted in February. The core annual CPI rose 2.3%, as previously estimated.

As for the US, the Producer Price Index (PPI) rose to 4% on a yearly basis in March, up from 3.4% in February, yet below the market expectation of 4.6%. On a monthly basis, the PPI rose 0.5%, matching February's increase and missing an estimate of 1.2%. The core annual PPI, which excludes volatile food and energy prices, was up 3.8%, below the market forecast of 4.2%.

Still, inflation figures are moving away from central banks’ goals, with the picture looking worse in the US than in Europe.

In the meantime, European Central Bank (ECB) officials are more aligned than Federal Reserve (Fed) ones. ECB representatives pretty much agree on the need to act if inflation continues to escalate due to the war in Iran. In the US, however, Fed policymakers are more divided, with some stuck to the idea of cutting rates this year.

Both the Fed and the ECB will have monetary policy meetings in less than two weeks. Both central banks are expected to keep interest rates on hold this time, but investors will be looking for whether officials lean further towards the hawkish side. Also, it should be Fed Chair Jerome Powell's last meeting as leader of the Federal Open Market Committee (FOMC). His successor, Kevin Warsh, is yet to be confirmed by Congress.

What’s next in the docket

The focus will remain on US-Iran developments. Whatever happens over the weekend will set the markets’ tone in the upcoming days, although optimism seems to lead.

On the data front, Germany will release March PPI figures on Monday, while the US will offer March Retail Sales on Tuesday.

S&P Global and the Hamburg Commercial Bank (HCOB) will release the preliminary estimates of the April Purchasing Managers’ Indexes (PMIs) for both economies on Thursday, with investors paying extra attention to employment and inflation sub-indexes.

EUR/USD technical outlook

From a technical point of view, EUR/USD is bullish. The daily chart shows that spot ot holds above all its moving averages, with the 20-day Simple Moving Average (SMA) heading firmly north below the longer ones at 1.1633. The 100-day SMA at 1.1704 and the 200-day SMA at 1.1633 provide relevant support. At the same time, the Momentum indicator aims firmly north within positive levels, while the Relative Strength Index (RSI) indicator maintains a firm upward slope in the mid‑60s, supporting another leg north.

In the weekly chart, EUR/USD holds a constructive bullish bias as price remains firmly above the 20-period simple moving average (SMA) at 1.1698 and well clear of the longer-term 100- and 200-period SMAs at 1.1211 and 1.0924, respectively, which together reinforce an undertone of long-term demand beneath the market. The Momentum is supportive of the bullish case, while the 14-period RSI indicator is hovering near 5, leaving room for further gains.

(The technical analysis of this story was written with the help of an AI tool.)