The euro edged higher against the US dollar on Friday, trading around 1.1782 and holding above key support at 1.1770, as traders waited for progress in renewed peace discussions between Washington and Tehran. The currency pair was set for a third consecutive weekly gain, supported by easing Middle East tensions and a pullback in safe-haven dollar demand.
Geopolitics drive sentiment, dollar loses some safe-haven appeal
The current backdrop is being shaped primarily by diplomatic moves in the US-Iran relationship and a partial lull in regional hostilities:
- Israel has announced a ten-day halt to operations in Lebanon.
- US President Donald Trump has confirmed that new talks with Iran will begin over the weekend.
- Reuters sources say negotiations have narrowed in scope, focusing on a temporary memorandum to reduce the risk of renewed conflict, while Iran’s nuclear program remains a main obstacle to a broader deal.
Officials have signaled that any comprehensive peace agreement could take up to six months to negotiate, implying that the present ceasefire may need to be extended to give diplomacy time to progress.
As perceived geopolitical risk has eased, traders have been cutting exposure to the safe-haven dollar, offering short-term support to the euro and other risk-sensitive assets.
Oil still elevated, pressure persists on energy-dependent eurozone
Despite some relief, the oil market remains tight. Crude prices are still more than 30% above pre-war levels, and Brent futures were trading near $98 per barrel on Friday after retreating from higher levels earlier in the week. Even with the recent dip, Brent is around 48% higher than a year ago.
These elevated energy prices are particularly problematic for the eurozone, which relies heavily on imported oil. The strain is showing in the
- Eurozone annual inflation accelerated to 2.6% in March, up from 1.9% in February.
- Energy costs contributed significantly to the latest inflation surprise.
- Forecasts for eurozone GDP growth in 2026 remain subdued, around 1.1%.
This mix of rising prices and weak growth is raising concerns about potential stagflation and the region’s ability to cope with a prolonged period of expensive energy.
Technical picture: euro uptrend intact but momentum cooling
The euro has gained about 2.5% against the dollar over the past three weeks, but momentum is showing signs of fatigue:
- The Relative Strength Index (RSI) is hovering just above 50, indicating a loss of upside momentum but no clear reversal.
- The Moving Average Convergence Divergence (MACD) line is close to the neutral line, pointing to a slowing but still constructive bullish pattern.
Key levels are in focus:
- Immediate support: 1.1770, currently containing downside moves.
- Below that, further support: 1.1720–1.1740 zone, then 1.1650. A sustained break under these levels would suggest a shift toward a more bearish structure.
- On the upside, resistance: 1.1825, tied to late-February highs. A move above this barrier would target 1.1930, the mid-February peak.
For many market participants, these levels are now serving as key gauges of conviction in either the geopolitical narrative or the eurozone macro story.
Balancing peace hopes against eurozone economic strain
The market is weighing two opposing forces:
- Positive driver: de-escalation in the Middle East and signs of progress in US-Iran diplomacy, which reduce perceived risk and curb demand for traditional safe-haven assets such as the dollar.
- Negative driver: deteriorating eurozone fundamentals, with higher inflation and soft growth expectations raising the risk of a prolonged squeeze on real incomes and corporate margins.
If the EUR/USD pair fails to hold above the 1.1770 support area, it may signal that growing concern over the eurozone outlook is starting to outweigh optimism over the peace process, potentially prompting a broader defensive tilt in global markets.
Conversely, a decisive break above 1.1825 would indicate that traders are prioritizing the improved global stability narrative, potentially extending the euro’s recent advance and supporting assets that typically benefit from stronger risk appetite.
Euro’s global role underscores market impact
The euro remains the shared currency of 20 European Union member states and accounts for roughly 31% of global foreign-exchange activity. Average daily turnover in euro transactions exceeds $2.2 trillion.
The EUR/USD pair alone represents around 30% of global currency trading volume, making it the most actively traded pair worldwide. As a result, shifts in this exchange rate—driven by Middle East diplomacy, oil prices, or eurozone data—tend to ripple quickly through broader currency and risk markets.
For a deeper macro view on rate cuts, inflation, and crypto–FX links, explore our latest insights in this analysis.
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