The EUR/USD pair fell to fresh 2026 lows in the 1.1430 region, settling not far above the level, as the US Dollar (USD) soared amid war-related fears as the Middle East crisis escalates on a daily basis.
Two weeks into the Iran war, risk aversion is the main driver of the markets. Skyrocketing oil prices amid supply disruptions are fueling inflation concerns, while spurring speculation that most central banks will have no choice but to hike rates.
Iran war changes inflation and central banks’ perspectives
The United States (US) and Israel joined forces and launched a massive attack on Iran aimed at destroying its nuclear program. The initial attack that took place on February 28 resulted in the killing of Iran’s Supreme Leader Ali Khamenei. But the troubled country did not hesitate and responded, hitting US bases in neighbouring countries, with the war quickly spreading through the Persian Gulf.
Back-and-forth attacks continue, while Iran practically seized control of the Strait of Hormuz, the only sea passage from the Persian Gulf to the open ocean, and a vital point in the region’s oil exports.
Iran’s new Supreme Leader, Mojtaba Khamenei, released his first statement in which he pledged to keep the Strait of Hormuz shut, while stating that attacks on neighbours will inevitably continue.
Also, US President Donald Trump expressed through Truth Social. Trump claimed higher oil prices are not a concern for the US, the world’s largest producer, according to his own words. He also claimed a couple of times to have won the war, or to be about to.
Truth is, hostilities have no end in sight. Meanwhile, crude oil prices resumed their bullish run on Thursday, with Brent surpassing the $100 mark and West Texas Intermediate (WTI) running beyond $ 90 a barrel.
Central banks’ decision in the docket
Fears inflation will rise, escalating alongside the Middle East war. Market players are pricing in most major banks, the Federal Reserve (Fed), and the European Central Bank (ECB) will have to change course. In the case of the Fed, investors are betting on no rate cuts at least until the September meeting, while in the case of the ECB, rate hikes are seen before year’s end.
The Fed is scheduled to announce its monetary policy decision on Wednesday, while the ECB will do the same on Thursday. Both central banks are widely anticipated to keep interest rates on hold, but the Fed will release fresh economic projections, and for sure, war-inflation-related concerns will be put on the table. The same concerns will dominate Chair Jerome Powell’s presser and ECB President Christine Lagarde’s post-decision words.
Meanwhile, US inflation, as measured by the change in the Personal Consumption Expenditures (PCE) Price Index, edged lower to 2.8% in January from 2.9% in December, although the core annual reading hit 3.1% in January, higher than the previous 3%. US inflation had been rising for some time before the war began.
As for Eurozone inflation, the final estimate of the February Harmonized Index of Consumer Prices (HICP) will be released ahead of the ECB announcement, and is expected to be confirmed at 2.4% YoY.
EUR/USD technical outlook
Technical readings in the daily chart show that EUR/USD is biased lower. The price is extending below the 20-day Simple Moving Average (SMA) at 1.1700 and converging with a flat 100-day SMA, also clustered around 1.1700. The 200-day SMA is barely below the shorter ones and lacks directional strength. The downside break from the prior consolidation is backed by a deeply negative slope in the Momentum indicator below its midline, indicating persistent selling pressure. Finally, the Relative Strength Index (RSI) indicator remains in a downward slope around 26, with no signs of a bottom in sight.
In the weekly chart, EUR/USD is sharply down for a second consecutive week, clearly bearish. The pair plunged below the 20-week SMA, which also stands near 1.170, reinforcing the now resistance area. Price still holds comfortably above the rising 100- and 200-week SMAs, so the broader trend backdrop stays positive even as upside momentum fades. Weekly Momentum has slipped into negative territory, while the RSI indicator dropped toward 40, signaling that sellers have gained control.
Immediate resistance emerges at the former range floor around 1.1600, while SMAs near 1.1700 reinforce the area on rebounds. A weekly close back above 1.1700 would soften the bearish tone and open the way toward the recent highs near 1.1850. On the downside, initial support sits at 1.1400, followed by a more important shelf near 1.1300. A sustained break below 1.1300 would expose the next downside area toward the rising 100-week SMA around 1.12, where medium-term buyers would be expected to reassert interest.
(The technical analysis of this story was written with the help of an AI tool.)
