EUR/USD: Gradual recovery path tied to Hormuz risks – NBC

FXStreet Insights Team FXStreet

National Bank of Canada (NBC) economists Stéfane Marion and Kyle Dahms describe recent Euro (EUR) weakness versus Dollar (USD) after the Iran conflict and energy shock, but keep a recovery bias for EUR/USD. They see market pricing for more than two European Central Bank (ECB) hikes in 2026 as excessive, expecting the ECB to stay on hold while EUR/USD gradually recovers toward 1.18–1.20 if Middle East tensions and Oil prices normalize.

Energy shock and ECB repricing shape outlook

"The euro ended March at the 1.15 level, having lost more than 2% against the dollar over the month, its worst monthly performance in nearly a year. After peaking near 1.16 in early April on news that the US may wind down its military campaign in Iran, the pair has retreated as the U.S. administration has offered no clear timeline for resolution, leaving the currency trapped between fragile hope and persistent risk. Our revised quarterly path reflects this with a potential bottoming out at 1.13 in Q2, recovering to 1.18 in Q4, conditional on a meaningful easing of hostilities."

"Markets have moved aggressively on this signal, now pricing a little more than two hikes in 2026, up from zero before the conflict. We believe this shift in pricing is overdone. The ECB faces a bind: tightening into a supply shock that is already compressing real incomes and dampening confidence risks doing more harm than good."

"We maintain a recovery bias over the balance of the year, anchored by the view that the Hormuz disruption is ultimately temporary and that the ECB will resist the temptation to tighten into weakness. The distribution of risks, however, has widened considerably. A swift de-escalation supports a faster return toward 1.18–1.20; a blockade that persists through the summer refill season, precisely when Europe needs to rebuild storage, would put the entire recovery path in question and could even see the pair surpass the mid-March lows."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD flatlines near 0.6965 as less hawkish RBA counters USD weakness

AUD/USD holds steady above a two-week low, trading near 0.6965 in the Asian session on Wednesday as early midterm election results heighten political uncertainty and weigh heavily on the US Dollar. Moreover, reviving safe-haven demand triggers a fresh leg down in US bond yields, offsetting Fed hike bets and exerting additional pressure on the buck. However, a less hawkish RBA caps the Aussie.

USD/JPY declines below 158.00 as USD weakens on midterm election results

USD/JPY comes under heavy selling pressure on Wednesday, dropping below 158.00 during the Asian session as the US Dollar slumps to a one-month low amid heightened political uncertainty after early US midterm vote counts. Moreover, the prospect of gridlock in Washington drives safe-haven flows, triggering a fresh leg down in US bond yields and further weighing on the buck.

Gold ticks lower while early trend points to Democrats victory in House

Gold trades with caution at around $3,930 in the Asian trading session on Wednesday. The precious metal struggles to gain direction as investors shift their focus to United States Midterm elections where early trend shows that Democrats would have a clear majority in House of Representatives.

Bitcoin tests critical support, Ethereum struggles below resistance, XRP extends losses

Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP) remain under pressure on Wednesday as bearish momentum continues to weigh on prices. BTC approaches key support around $76,466, and a decisive close below could open the door to deeper losses. Meanwhile, ETH struggles below key resistance while XRP faces rejection at the upper trendline of a falling channel pattern, all hinting at deeper losses.

US Midterms: Can Wall Street rally despite AI debt and credit risks?

Political uncertainty may be coming to an end, but the real question for investors is whether the technology sector can sustain its enormous spending commitments. The US midterm elections are arriving at an interesting moment for financial markets.

The 2% inflation target came from a throwaway remark. It now moves trillions

The Federal Reserve's 2% inflation goal grew out of an off-the-cuff remark by a New Zealand politician in 1988. Bond investors still price long-term US debt as if 2% holds, so a change in how the Fed measures inflation would move markets.