EURUSD recovers all losses caused by the conflict as hopes rise for a US-Iran agreement. What lies ahead?

Market Fundamentals Overview

US Dollar (USD) Update

The US dollar continued its downward trend yesterday, as optimism surrounding a potential US-Iran agreement prompted investors to unwind positions established during the recent conflict. The next phase of negotiations is set to begin tomorrow. President Trump expressed optimism, suggesting that the coming days could bring significant developments.

The outcome of the US-Iran discussions is now the primary driver for the dollar. Should talks collapse, a short-lived surge in the greenback is possible; however, if the ceasefire remains intact, any upward movement may be restrained. Conversely, a successful peace agreement could further weaken the dollar, though a “sell the fact” reaction cannot be ruled out.

Currently, markets are factoring in a 10 basis point rate cut by the end of the year, with the possibility of further easing if a peace deal is reached. However, expectations for additional stimulus may be disappointed, as robust employment and persistent rate cut forecasts are likely to keep inflation above the Federal Reserve’s 2% target.

Euro (EUR) Insights

There have been no significant changes regarding the euro. European Central Bank officials continue to emphasize their hawkish stance, while also urging patience due to the uncertainty surrounding the US-Iran situation and its economic implications.

Recent economic data has confirmed expectations: headline inflation is rising, while economic activity is slowing. Should the conflict conclude, the ECB is expected to look past short-term fluctuations and maintain a neutral policy, while markets may continue to scale back expectations for rate hikes.

EURUSD Technical Analysis – Daily Chart

On the daily timeframe, EURUSD has rebounded to the 1.18 level, effectively reversing the losses incurred during the recent conflict. There is now a support area near 1.1640. If the price pulls back to this zone, buyers may look to enter with stops below support, aiming for a move toward 1.20. Sellers, meanwhile, will be watching for a break below support to target the 1.14 region.

EURUSD Technical Analysis – 4-Hour Chart

The 4-hour chart highlights a trendline that continues to support bullish momentum. Buyers are likely to use this trendline as a reference point for risk management, seeking further gains. Sellers, on the other hand, will be looking for a break below the trendline to push the pair down toward the 1.1640 support area.

EURUSD Technical Analysis – 1-Hour Chart

On the 1-hour timeframe, trading opportunities are limited. Buyers may find a more favorable risk-reward setup near the trendline, while sellers will wait for a decisive move lower to confirm a deeper pullback. The red lines on the chart indicate today’s average daily range.

Key Events Ahead

• The latest US Jobless Claims data will be released tomorrow.
• However, the market’s primary attention remains on the upcoming second round of US-Iran negotiations over the next two days.