EUR/USD forecast: Can risk-on mood keep euro supported despite oil volatility?

While European markets pulled back as oil prices found renewed support, risk appetite on Wall Street was holding up rather well, with investors on Wall Street seemingly content to look past the ongoing noise out of the Middle East and instead focus on the broader macro picture. There’s been a noticeable rotation back into equities in the last several days, alongside renewed interest in pro-growth and higher-yielding emerging market currencies – although this motion stalled today. Still, the recent trend of a strong seems to have ended unless we see a meaningful re-escalation in the Iran situation—particularly one that drives oil prices sharply back towards recent highs. If that doesn’t happen, then the near-term outlook for EUR/USD forecast remains broadly constructive.

 

What’s Driving Sentiment?

 

While risk assets have stayed largely supported, with the S&P 500 pushing to fresh record highs, the dollar has managed a modest rebound, helped in part by a 5% recovery in oil prices today. The current market backdrop would have seemed unlikely just a fortnight ago. The Strait of Hormuz remains effectively shut, Brent crude is hovering just shy of the $100 mark, and yet US equities are pressing on to all-time highs.

 

 

For now, markets appear to be taking the lack of further escalation in the Persian Gulf as a green light. Both the S&P 500 and Nasdaq 100 have continued to grind higher, buoyed not only by potential US–Iran pace, but also by a solid run of corporate earnings.

 

This upbeat tone in equities has weighed on demand for the US dollar, allowing the euro to find firm footing in recent sessions. In essence, markets are pricing in a more constructive geopolitical outcome, and risk sentiment is reflecting that optimism.

 

Technical EUR/USD forecast and key levels to watch

 

From a technical analysis point of view, there EUR/USD has pulled back slightly after its recent rally, which saw the pair break momentarily above the 1.18 handle. That area is now proving to be a key zone of resistance—unsurprising, given it marks the region where the initial sell-off began when the conflict first escalated.

 

 

The question now is whether this pullback on the EUR USD exchange rate is a reflection of profit-taking and we see a decisive break higher soon, or whether the sellers will come back to defend this zone more meaningfully? A clean move above this resistance would open the door towards 1.1900, with 1.2000 not far beyond as the next psychological target.

 

Encouragingly for the bulls, the pair has managed to break above its 200-day moving average recently, which is a typically positive signal. However, it’s worth noting that we’ve seen similar breakouts fail before, so confirmation will be key.

 

On the downside, initial support comes in around 1.1765. Beneath that, the 200-day moving average at 1.1673 becomes critical. A sustained move below this level would undermine the bullish structure and could see the pair drift back towards the origin of the breakout near the 1.1600 area.

 

For now, the balance of risks appears tilted slightly in favour of the euro, underpinned by resilient risk sentiment and a softer dollar. However, the situation remains highly sensitive to geopolitical developments—particularly anything that might trigger a sharp move in oil or a renewed flight to safety.

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R