Euro Stuck in Red as Middle East Crisis Fuels Dollar Demand, Oil Prices Surge

Traders' Opinions

Summary:

EUR/USD remains under pressure near 1.1550 as escalating Middle East conflict and surging oil prices drive investors toward the safe-haven US dollar.

SELL EURUSD

EXP

TRADING

1.15500

Entry Price

1.14000

1.16500

1.15138 +0.00037 +0.03%

0.0

Pips

Flat

1.14000

Exit Price

1.15500

Entry Price

1.16500

The euro is struggling to find its footing against a resilient US dollar, hovering precariously near the 1.1550 level during European trading hours on Thursday. The single currency is extending its modest losses from the previous session, caught in a pincer movement of resurgent safe-haven demand for the greenback and mounting anxiety over an energy price shock that threatens to stall the Eurozone's economic recovery.

The early-week optimism that briefly lifted risk assets has evaporated as quickly as it appeared. While the International Energy Agency's (IEA) unprecedented decision to release 400 million barrels from global emergency reserves initially offered a glimmer of hope , the move has proven to be insufficient cold comfort against the red-hot geopolitical landscape in the Middle East . Oil prices have reversed their temporary dip and are charging higher once again, a classic precursor to dollar strength and risk aversion.

The core driver of today's price action is the palpable escalation of the conflict. Newsflow out of the Gulf region has taken a decidedly dangerous turn. Reports that Iraq was forced to halt operations at key oil ports following Iranian attacks on tankers have sent shivers through the supply chain . More alarmingly, a coordinated defensive effort by Gulf states—including Bahrain, Kuwait, the UAE, and Saudi Arabia—to intercept Iranian missiles and drones underscores the widening theater of conflict . This is no longer a bilateral issue; it is a regional conflagration with direct implications for the world's most vital energy artery.

For currency traders, the calculus is brutally simple. The immediate aftermath of the IEA news saw a brief sigh of relief, but the subsequent headlines have confirmed the market's worst fears: the risk to supply is not receding; it is accelerating. This has poured jet fuel back into crude prices, which in turn has two profound effects on the dollar. Firstly, it triggers classic safe-haven flows—investors flee uncertainty and park capital in the world's primary reserve currency. Secondly, and perhaps more critically for the medium-term outlook, it reshapes central bank expectations .

The logic is becoming increasingly hawkish for the Federal Reserve. While the IEA release is a significant logistical move, analysts at JPMorgan and elsewhere have been quick to point out its limitations . With the potential loss of up to 10-12 million barrels per day from the Strait of Hormuz, a gradual reserve release of perhaps one million barrels per day is a bridge far too short . Consequently, oil at $90, $95, or even $100 a barrel is stoking fears that the next round of inflation data—the prints that will land on Fed desks in April and May—could be shockingly hot. This forces the market to re-evaluate the trajectory of US interest rates, pricing out cuts and potentially pricing in a longer pause, or even whispers of hikes, which is rocket fuel for the dollar.

Conversely, the landscape for the euro is turning distinctly bearish. The Eurozone, a net energy importer, faces a double blow: not only does a stronger dollar mechanically weigh on the pair, but the surge in energy costs acts as a tax on the regional economy . Danske Bank strategists articulated this shifting paradigm on Thursday, suggesting the energy shock has fundamentally tilted the risk-reward for EUR/USD to the downside . They have advocated for a tactical short position, eyeing a potential drop toward the 1.1200 level in the coming months. The logic is sound: the European Central Bank, which was tentatively eyeing a summer rate cut, will find its hands tied. Raising rates against a supply-side shock—which crushes growth while raising prices—is the definition of stagflationary headache. The ECB is unlikely to hike into this headwind, creating a policy divergence with a Fed that may be forced to stay higher for longer due to imported inflation.

From a technical perspective, the charts are telling a sobering story. The 1.1550 level is currently acting as flimsy support. A firm break below this point could open the floodgates, with very little in the way of structural support until the November 2024 lows near 1.1200 .

Looking ahead to the North American session, the US economic calendar is relatively light, with only Weekly Initial Jobless Claims scheduled for release. Barring a catastrophic print, this data is likely to be relegated to the sidelines. The true market movers will be the headlines. All eyes are on Wall Street futures, which are already pointing to a sharply lower open, down approximately 0.7% . A selloff in US equities would reinforce the risk-off mood, crushing any hope of a euro rebound and likely driving the pair further into the red as the New York afternoon unfolds.

Technical Analysis

Euro Stuck in Red as Middle East Crisis Fuels Dollar Demand, Oil Prices Surge_1

From a technical perspective, EUR/USD remains entrenched in a bearish market structure on the 4-hour chart following a decisive breakdown from the prior consolidation range near the 1.1800–1.1820 resistance zone. The sharp impulsive decline that began in early March shifted market structure from sideways to bearish, establishing a sequence of lower highs and lower lows, which continues to define the prevailing trend.

After the initial selloff, price attempted a corrective rebound toward the 1.1650 resistance area, which previously acted as a support level before the breakdown. This region has now transitioned into a key supply zone, reinforcing the classic support-turned-resistance dynamic often observed during bearish trends. The rejection from this area confirms that sellers remain in control and that the broader downward momentum has not yet been invalidated.

In the near term, the pair is consolidating around the 1.1550 support region, which represents an important structural level within the recent price range. This area has temporarily stabilized the decline, but the lack of sustained bullish follow-through suggests that the move is more likely a bearish continuation pause rather than a meaningful reversal. If selling pressure resumes and price breaks decisively below 1.1550, the next downside target would likely emerge around the 1.1500 psychological level, followed by a deeper move toward the 1.1400 support zone, which marks the next major demand region highlighted on the chart.

A sustained break beneath 1.1500 would confirm renewed bearish momentum and could accelerate the decline toward the 1.1400 handle, representing a broader retracement within the multi-week structure. Such a move would reinforce the dominant bearish bias and signal continuation of the broader downtrend that began from the late-February highs.

On the upside, bulls would need to reclaim the 1.1600–1.1650 resistance region to meaningfully challenge the bearish outlook. A sustained move above this zone would disrupt the sequence of lower highs and could trigger a corrective recovery toward 1.1750, where the next significant resistance band is located. However, until this occurs, rallies are likely to be viewed as selling opportunities within a broader bearish trend.

Momentum indicators further support this cautious outlook. The Relative Strength Index (RSI) is likely stabilizing in the mid-40s region, reflecting weak bullish momentum and confirming that the market remains tilted toward sellers. Meanwhile, the Moving Average Convergence Divergence (MACD) appears to be hovering near the neutral line but remains biased to the downside, suggesting that bearish momentum has slowed but not yet reversed. This behavior typically accompanies consolidation before continuation rather than a full trend reversal.

TRADE RECOMMENDATION

SELL EUR/USD

ENTRY PRICE: 1.1550

STOP LOSS: 1.1650

TAKE PROFIT: 1.1400

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Euro Stuck in Red as Middle East Crisis Fuels Dollar Demand, Oil Prices Surge

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