EUR/USD Weekly Forecast: Optimism may not last as tensions in the Middle East escalate

The EUR/USD pair edged higher for a second consecutive week, flirting with the 1.1800 figure and settling nearby. Hopes for a deal between the United States (US) and Iran fluctuated throughout the week, but optimism prevailed despite the lack of progress. As a result, the US Dollar (USD) ended the week with losses. Still, due to persistent uncertainty and some mixed headlines, major pairs held within familiar levels.

Iran war headlines keep leading price action

Tensions around the Strait of Hormuz held high at the beginning of the week, particularly after US President Donald Trump announced the “Project Freedom,” aimed at escorting oil vessels through the Strait. The project, launched on Monday, was paused on Tuesday as President Trump claimed progress in negotiations. Mid-week, risk appetite took over on headlines indicating both sides were closing in on a final agreement, but it did not last long, as fire trade continued in the troubled area.

By Friday, Tehran continued to complain that US unilateral demands are “impossible,” while US President Trump lifted his tone, threatening to resume attacks if a deal is not signed fast enough. If something, Oil prices edged lower throughout the week, with the barrel of West Texas Intermediate (WTI) ending the week around $91 per barrel, after starting it at around $97, a sign that concerns about supply disruptions somehow eased.

Tensions were high at the end of the week, as Fox News reported the US carried out airstrikes, hitting several empty tankers trying to break the blockade, while an Iranian Foreign Ministry spokesperson declared that Tehran's armed forces are fully prepared and closely monitoring the situation, adding that wherever necessary, they will respond with full force to any aggression or provocation. The market, however, did not reflect the stress as the USD held near weekly lows.

One war is not enough for US President Trump, who has also escalated the trade war with the European Union (EU). Both economies reached a trade deal back in July, but progress stumbled mid-week after talks between EU lawmakers and governments ended without an agreement. As a result, Trump threatened much higher tariffs on the EU by July 4 if the bloc fails to drop its levies on the US to zero. Another round of negotiations is scheduled for May 19.

Resilient US labor market

The macroeconomic calendar revolved around US employment-related data. The country released the ADP Employment Change report, which showed that the private sector added 109K new positions in April, much better than the previous 61K. The positive trend was also reflected by the Nonfarm Payrolls report, which showed that the whole economy added 115K in the same month, down from the 185K from March, yet beating the expected 62K. Minor figures, such as Initial Jobless Claims, were also better than anticipated, hinting at a resilient labor market.

Other US data was not encouraging at all, as the ISM Services Purchasing Managers’ Index (PMI) printed at 53.6 in April, down from the previous 54. The Goods and Services Trade Balance deficit widened to $-60.3 billion in March, while consumer confidence fell further in May according to preliminary estimates, as the University of Michigan Consumer Sentiment Index edged lower to 48.2 from 49.8 in the previous month.

Meanwhile, Federal Reserve (Fed) officials flooded the wires. Not a big surprise, most of them lean to the hawkish side, which makes markets wonder how monetary policy will unfold under the upcoming Chair Kevin Warsh.

Worrisome figures hit the EU: the March Producer Price Index (PPI) jumped to 3.4% MoM from the -0.6% posted in February, a consequence of the Iran war and higher energy prices. Retail Sales in the same month were down 0.1%, while the February figure was revised to -0.3%.

In the upcoming days, the calendar highlights the US April Consumer Price Index (CPI), scheduled for May 12, while the PPI for the same month will be released a day later. On Thursday, the country will offer April Retail Sales.

EUR/USD technical outlook

From a technical point of view, and according to the daily chart, EUR/USD builds on its bullish tone. The pair develops above the 20-day and 100-day simple moving averages (SMAs) at roughly 1.1737 and 1.1709, respectively. This positioning suggests buyers retain control, while a flat 200-day SMA near 1.1682 defines a floor. Technical indicators partially favor additional gains, as the Momentum indicator remains neutral, but the Relative Strength Index (RSI) indicator advances and stands around 59, skewing the risk to the upside.

Bigger time frames offer a similar picture. In the weekly chart, EUR/USD retains a bullish near-term bias as it stands comfortably above the 20-week simple moving average (SMA) at 1.1701, while approaches to it attracted buyers. The long-term 100- and 200-week SMAs remain far below the shorter one, at 1.1238 and 1.0944 respectively. The Momentum indicator fails to provide directional clues, flat around its mid-line, but the RSI gains upward traction around 55, in line with higher highs ahead.

As long as the 1.1700 area holds, the risk remains skewed to the downside. A clear break below the 200-day SMA, however, exposes the 1.1600 mark ahead of the 1.1540 price zone. Resistance comes at 1.1800, followed by a recent peak at 1.1850. Steady gains beyond the latter expose the 1.1940 region.

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