EUR/USD Starts the Week Higher, but the Outlook Remains Unstable

EUR/USD moved higher on Monday after a correction, trending towards 1.1759. Earlier, the US dollar had partially regained ground following last week's decline, supported by increased demand for safe-haven assets amid an escalation of the US-Iran conflict.

Donald Trump reported that the US Navy opened fire and detained an Iranian ship in the Gulf of Oman after it failed to comply with orders when leaving the Strait of Hormuz.

Tehran, in turn, abandoned plans to open the strait after Washington failed to lift the blockade of Iranian ports. Iran also signalled it would not participate in the second round of talks.

The protracted conflict is increasing risks to energy supplies, intensifying inflationary pressure, and reducing the likelihood of policy easing. Markets are revising their expectations, with the probability of a Fed rate cut diminishing this year.

The baseline scenario now assumes rates will remain unchanged in the coming months, likely through the end of 2026.

Technical Analysis

On the H4 chart of EUR/USD, the market is forming a consolidation range around the 1.1800 level, currently extending down to 1.1737. An upward wave to 1.1790 is likely. Subsequently, a downward wave to 1.1700 could develop. Technically, this scenario is confirmed by the MACD indicator, with its signal line above the zero level but pointing firmly downwards, reflecting continued bearish momentum with the potential for the downward trend to persist.

On the H1 chart, the market is forming the structure of the next upward wave to the 1.1790 level. After reaching this level, a correction to 1.1700 is likely, followed by a possible rise to 1.1745. Technically, this scenario is confirmed by the Stochastic oscillator, with its signal line below 50 and pointing firmly upwards towards 80.

Conclusion

EUR/USD has opened the week on a positive note, but the outlook remains fragile following renewed escalation in the US-Iran conflict. Trump's announcement of a naval incident in the Gulf of Oman and Tehran's withdrawal from planned talks and efforts to reopen the Strait of Hormuz have revived geopolitical risks. Energy supply concerns are intensifying inflationary pressures, pushing Fed rate cut expectations further out, with rates now expected to remain on hold through 2026. While technical indicators suggest a short-term bounce towards 1.1790, the broader bearish momentum appears intact, and any sustained euro strength would likely require a genuine de-escalation of the conflict.

By RoboForex Analytical Department

Disclaimer:

Any forecasts contained herein are based on the author's particular opinion. This analysis may not be treated as trading advice. RoboForex bears no responsibility for trading results based on trading recommendations and reviews contained herein.