EUR/USD Weekly Forecast: War and central banks in the limelight

The EUR/USD pair ended a three-week winning streak and settled below the 1.1700 mark as the US Dollar (USD) strengthened amid Middle East uncertainty.

War briefing

There was a myriad of contradictory headlines throughout the week, leaving market participants clueless. Optimism about a deal between the United States (US) and Iran faded as the expected negotiating meeting in Islamabad did not take place.

It took little to disrupt the peace settled in the previous Friday, after headlines indicating that Iran had fully reopened the Strait of Hormuz following a ceasefire in Lebanon. The illusion broke quickly as the US maintained the blockade alongside the ceasefire. By Wednesday, Tehran declared the ceasefire broken. Still, the conflict remains contained around the Strait: Iran kept planting mines, and the US attacked Iranian oil vessels.

And while the US maintained the doors open for talks, Iran kept them closed. Fears arose on Thursday over headlines indicating that the speaker of the Iranian Parliament, Mohammad Bagher Ghalibaf, had resigned from the negotiating team following the IRGC's intervention, according to Israeli N12 news. The headline was later denied by Iranian news agencies.

Meanwhile, tensions between Israel and Lebanon persist despite a pause in mutual attacks. United States (US) President Donald Trump claimed the US is working on the matter and that the ceasefire between the two troubled nations will be extended by three weeks.

Finally, on Friday, Pakistan announced a “serious” breakthrough may be announced ahead of the weekend and hinted at a fresh round of negotiations, reviving optimism.

Market players, however, remain cautious. Uncertainty over what’s next in the front war is high, as it’s unclear whether negotiations will resume or not, or whether the situation will worsen with more widespread attacks.

In the meantime, the Strait of Hormuz remains closed and global Oil supply is disrupted, continuously pushing inflation concerns up.

The best barometer of investors’ sentiment on war headlines is Crude Oil. The barrel of West Texas Intermediate (WTI) is ending the week at around $95, a clear sign that speculative interest is not really confident about a quick resolution of the Persian Gulf crisis.

Scarce data ahead of central banks’ announcements

The week offered little in terms of macroeconomic data. The most relevant figures were the S&P Global Purchasing Managers’ Indexes (PMIs). The April flash estimates painted a mixed picture, as the Eurozone's preliminary Composite PMI declined to 48.6 from the 50.7 posted in March. Services output was behind the decline as the services index contracted to 47.4, down from 50.2, while the Manufacturing PMI printed at 52.2, beating the expected 50.8 and the previous 51.6.

US readings were a bit more encouraging: The Composite PMI printed at 52, better than the final March reading of 50.3, while manufacturing output also improved, rising to 54 from the previous 52.3 and beating expectations of 52.5. Finally, the Services PMI surged to 51.3 after printing at 49.8 in March and surpassing the market’s forecast of 50.

Other than that, US Retail Sales rose 1.7% in March, beating expectations of 1.4% and more than doubling the previous 0.7%.

In the upcoming days, and beyond central banks' monetary policy decisions, market players will pay attention to German and Eurozone inflation and growth data, as both will release the preliminary estimates of the April Harmonized Index of Consumer Prices (HICP) and the flash estimates of their respective Q1 Gross Domestic Product (GDP).

Across the pond, the US will also offer the first estimate of the Q1 GDP, March Personal Consumption Expenditures (PCE) Price Index figures, the Federal Reserve (Fed) favorite inflation gauge, and the April ISM Manufacturing PMI.

Central banks are not actually expected to deliver surprises, as long as uncertainty about war developments remains.

The Fed is scheduled to announce its monetary policy decision on Wednesday and is widely anticipated to maintain interest rates on hold at the current rate of 3.5%-3.75%. Market players anticipate policymakers will lean towards the hawkish side, as inflation risks mount with the war. Chairman Jerome Powell will offer a press conference after announcing the decision, his last one. It’s more likely that questions will revolve around what he thinks and expects from his successor, Kevin Warsh, than about his view on the US economic health.

The European Central Bank (ECB) will follow on Thursday. Market players anticipate the central bank will hold rates unchanged, although a rate hike later in 2026 is on the table. European policymakers are also expected to deliver a hawkish message amid concerns that energy prices are fueling inflationary pressures.

EUR/USD technical outlook

The daily chart for EUR/USD shows a modest bullish bias, with spot hovering around the 100-day Simple Moving Average (SMA) at 1.1708 while above the 200-day SMA at 1.1677, suggesting the broader uptrend structure remains intact. The 20-day SMA at 1.1671 runs below the price and reinforces underlying modest demand. The Relative Strength Index (RSI)indicator aims higher at around 53, while the Momentum indicator is stable well-above its midline, hinting that buyers retain the initiative, albeit without overextended conditions.

On the downside, immediate support is at the 200-day and 20-day SMAs, which converge at 1.1670, where a deeper pullback could expose 1.1600. The weekly high at 1.1840 provides resistance ahead of the 1.1900 threshold.

The wider perspective is neutral. In the weekly chart, EUR/USD holds above a rising cluster of moving averages, with the 20-week simple moving average (SMA) at 1.1699 and the 100- and 200-week SMAs reinforcing underlying demand at 1.1219 and 1.0930, respectively, too far away to be relevant. Technical indicators lack directional strength just above their midlines, failing to provide clear directional clues while reflecting the ongoing uncertainty.

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