EUR/USD remains rangebound amid the prolonged US-Iran stalemate and widely expected hikes
The desk maintains a cautious outlook on EUR/USD, anticipating continued rangebound trading amid geopolitical tensions and central bank policy uncertainty. Per the full note source, the US dollar has found some support as US-Iran negotiations stall, while the Fed's shift away from an easing bias is underscored by resilient economic data. With the market pricing in an 84% chance of a June rate hike from the ECB, the euro faces headwinds despite the potential for inflationary pressures to influence Fed policy. Upcoming US CPI data could serve as a catalyst for volatility in the pair.
What the desk is arguing
The desk frames this as a period of consolidation for EUR/USD, with geopolitical developments and central bank signals keeping the pair in a tight range. The recent rejection of war-ending proposals by both the US and Iran has left traders in a wait-and-see mode, as they look for clearer direction from upcoming economic data.
The Fed's gradual pivot away from an easing stance is evident, with elevated energy prices and strong US data suggesting that inflation could remain above the 2% target for longer. This backdrop supports the dollar, particularly if the Strait of Hormuz remains closed, which could keep oil prices high and bolster hawkish Fed sentiment.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.075, with a range between 1.04 and 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.08 (Mar26)
This view aligns with jpmorgan, which anticipates a stronger dollar, while diverging from bofa, which sees potential for a weaker euro. The desk's target sits at the lower end of the consensus range, reflecting a cautious stance amid current uncertainties.
How other firms see it
Firms like jpmorgan and citi are aligned in their bullish outlook on the dollar, suggesting that the Fed's tightening cycle could continue to support USD strength. Conversely, bofa holds a contrary view, expecting the euro to outperform in the near term.
The EUR/USD trajectory is closely linked to the upcoming US CPI and PPI reports, which will provide insight into inflation trends and potential Fed actions. Additionally, the ECB's rate decisions will be critical in shaping the euro's performance against the dollar.
What the calendar says
With the US CPI report scheduled for tomorrow, traders should be prepared for potential volatility in EUR/USD. This will be followed by PPI data on Wednesday, which could further influence market expectations around Fed policy.
Key takeaways
- 01EUR/USD remains rangebound amid geopolitical tensions and central bank policy uncertainty.
- 02The market is pricing in an 84% chance of a June rate hike from the ECB, which may limit euro upside.
- 03Upcoming US CPI data could serve as a catalyst for volatility in the pair.
- 04The Fed's shift away from an easing bias is supported by resilient economic data and elevated energy prices.
Market implications
Watch the 1.18 resistance level closely; a break above could signal a bullish shift, while failure to breach may lead to a pullback towards 1.1650. The upcoming US CPI report on the 14th will be critical in shaping market sentiment and positioning ahead of potential Fed actions.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2027 |
|---|---|---|
Goldman Sachs | Bearish | 1.1200 |
UOB | Neutral | 1.1450 |
Citi | Bearish | 1.1000 |
FUNDAMENTAL OVERVIEW USD: The US dollar regained some ground as both Trump and Iran rejected the respective war-ending proposals calling them unacceptable and leaving the two sides miles apart on any potential agreement. Moreover, Israeli PM Netanyahu confirmed that the removal of Iranian nuclear material remains an active war priority, and separate reports indicated that Trump told Netanyahu directly he wants to go in on Iranian nuclear sites. This kind of headline noise has been going on for several weeks and kept the price action in rangebound mode as traders continued to wait for new developments before picking a direction.
Looking ahead, the Fed is slowly abandoning the easing bias amid resilient US data and elevated energy prices. The reopening of the Strait could weigh on the greenback in the short-term as oil prices will likely crater and rate cut bets will increase. After that though, the focus will quickly turn back to the Fed and the economic data.
With the end of the war, the increase in economic activity could keep inflation higher for longer and eventually even require rate hikes to bring it sustainably back to the 2% target that the Fed has been missing since 2021. There’s also another scenario where the Strait remains closed for longer and oil prices stay elevated with the risk that the Fed turns hawkish and gives the greenback a strong boost given the bearish positioning on the dollar. EUR: On the EUR side, a June rate hike is not basically a done deal as policymakers hinted that the situation in the Middle East and oil prices will need to change markedly to hold them off from delivering a rate hike.
The market is pricing in an 84% chance of a rate hike in June and a total of 68 bps of tightening by year-end (almost 3 rate hikes). This makes it harder for the euro to rally on interest rate expectations as the ECB is unlikely to “outhawk” the market pricing. The recent economic data has been highlighting the ugly combination of weaker economic activity and stronger price pressures.
There was no strong case for multiple rate hikes. The ECB wants to err on the cautious side and deliver an insurance hike if the situation doesn’t change before June. After that, we can expect the central bank to stay on hold until September as they gather more data over the summer.
EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME On the daily chart, we can see that EURUSD bounced around the 1.1650 support and rebounded into the 1.18 handle. There’s not much we can glean from this timeframe, so we need to zoom in to see some more details. EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME On the 4 hour chart, we can see the price action is now confined between the resistance zone around the 1.18 handle and the upward trendline.
Sources & References
How we cover this story
Related news on this pair
Euro: Range-bound rebound faces key resistance against US Dollar – Societe Generale
EUR/USD rebound capped by technical resistance suggests limited near-term upside for euro weakness trades.
Euro: Yield spreads hint at recovery against US Dollar – MUFG
Widening EUR/USD yield spreads in favor of eurozone assets suggests technical support for mean reversion; monitor if 10Y differential sustains above 100bp.
Euro: Narrow path for sustained strength against US Dollar – ING
ING assessment of constrained EUR upside signals limited momentum for euro strength; USD positioning likely remains defensive.