EUR/USD Rises Through Conflict Range Highs

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Euro-dollar rises through a key resistance zone as hope for peace in the Middle East proves difficult to extinguish.

The euro rises against the dollar despite clear difficulties with Wednesday's ceasefire agreement, struck between the U.S. and Iran at the eleventh hour in order to avoid a major escalation in hostilities.

By Thursday it's clear the ceasefire is a ceasefire in name only, and the Strait of Hormuz remains effectively shut to shipping, denying the world's economy up to 20% of its usual oil and natural gas supplies. Oil prices have stabilised and equity markets are more circumspect, having rallied in response to the initial ceasefire headlines.

Key sticking points include an admission by U.S. President Donald Trump that more work needs to be done to reach a "REAL AGREEMENT" and Iran's reluctance to engage in talks planned for the weekend, citing Israel's continuing military campaign against Iran's proxies in Lebanon.

"The US‑Iran ceasefire was initially bullish across various asset classes, but cracks are starting to show one day later," says Michael Tang, an analyst at Commonwealth Bank.

Despite the obvious geopolitical headwinds, Euro-dollar rises to 1.1663 on Thursday, suggesting traders remain optimistic that the direction of travel is clear: one that takes us towards a meaningful peace.

The exchange rate's gains lift it above 1.1650, which is the upper limit of the conflict range; a move through here shifts the outlook to a more constructive one and further near-term strength might be expected as a result.

From here, eyes turn to Wednesday's high at 1.1721, a level that was rejected after it became clear that hostilities were continuing across the Gulf.

However, we hear from currency strategists at Danske Bank that it might be too early to back gains in euro-dollar as the situation in the Middle East is still to volatile.

"While we remain structurally bearish on the USD, we continue to favour a tactical long USD position - i.e. short EUR/USD - in the near term, as we are not convinced about the sustainability of the current ceasefire," reads a daily strategy note from the bank.

Economists at UBS meanwhile advise they have slashed Eurozone growth forecasts, signalling the regional economy will endure a meaningful hit from the war.

"We lower our Eurozone GDP forecast for 2026 by 0.5pp to 0.8% and for 2027 by 0.2pp to 1.2%, while keeping 2028 at 1%. Risks seem tilted to the downside," says a flash note from the Swiss bank out Thursday.

For euro-dollar, the coming months will be determined by how the U.S. and Eurozone economies evolve: does one outperform the other, and if so, by how much? That would plug into central bank policy decisions, which should ultimately drive exchange rates.

A meaningful hit to the Eurozone's economy relative to that of the U.S. could undermine the bullish case for euro-dollar to reach 1.20 and higher later in the year.