As geopolitical concerns fade, markets will likely refocus on US dollar vulnerabilities — especially pressure from the administration on the Federal Reserve to cut rates. Against this backdrop, Congress’s consideration of Kevin Warsh’s nomination takes on added significance. Let’s analyze the situation and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- Rumors of talks between the US and Iran are supporting the euro.
- The drop in oil prices is linked to weakening demand.
- The US dollar is losing its edge.
- Short positions can be opened if the EUR/USD pair declines below 1.176.
Weekly Fundamental Forecast for Dollar
Iran insists it has no intention of engaging in dialogue at gunpoint, but it appears it will agree to negotiations. Oil prices are declining, allowing the EUR/USD pair to fill the gap that formed at the start of the week. Meanwhile, a new drama is brewing in Washington as Congress considers Kevin Warsh’s nomination for Fed chair.
Geopolitical factors tend to have only a temporary impact on markets. Once conflicts end, financial markets typically return to normal. The paradox of the war in the Middle East is that it hasn’t ended, yet markets have already reverted to pre-war levels.
Spot Price of Brent Crude
Source: Wall Street Journal.
Stock indices and EUR/USD quotes are trading higher than they were at the end of February. At the same time, oil prices are substantially higher. However, significant shifts are also taking place in the oil market. Spot contracts that were recently trading at $140 per barrel are now priced at $99. The reason isn’t just Donald Trump’s intention to end the conflict with Iran. More likely, there is weak demand.
Without support from Brent crude, the US dollar is struggling. Not only are reports of potential negotiations reducing demand for safe-haven assets, but the outlook for competing currencies—particularly in the eurozone, which is heavily dependent on energy—no longer looks as weak. Adding to this is Christine Lagarde’s relatively hawkish rhetoric. According to the ECB president, the central bank may be forced to raise rates more than would otherwise be the case if governments rely too heavily on fiscal stimulus to cushion the impact of high gas prices.
ECB’s Inflation Forecasts
Source: Bloomberg.
Meanwhile, monetary tightening is unlikely in April, as the consequences of the war in the Middle East are more significant than those of the armed conflict in Ukraine. The ECB needs time to assess the situation. However, inflation is clearly accelerating, and the focus on rate hikes will boost the EUR/USD pair.
At the same time, Scott Bessent said he understands why the Fed is not cutting rates. Such a statement could provide support for Fed chair nominee Kevin Warsh. He will have to navigate a difficult path in Congress — demonstrating his commitment to the central bank’s independence while also aligning with Donald Trump’s expectations.
Once geopolitics is a thing of the past, the Fed may return to cutting rates. This factor is bearish for the US dollar. At the same time, a protracted conflict in the Middle East could keep the greenback buoyant.
Weekly Trading Plan for EUR/USD
The EUR/USD pair is likely to consolidate rather than continue its upward trend seen last week. While a trading range is taking shape, it is better to refrain from trading. Another option is to keep an eye on the 1.176 level as a reference point. If the pair closes below this level, it could trigger a sell-off.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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