EUR/USD Forecast: Fed and ECB Take Centre Stage, But Oil Still Calling the Shots
Author: Fawad Razaqzada, Market Analyst
Date: March 18, 2026
Market Overview
The US dollar has experienced a slight softening in recent sessions, aided by a modest recovery in equity markets. This shift indicates a growing risk appetite among investors, largely attributed to a pause in the recent surge of oil prices. Some market participants are betting on a potential easing of tensions surrounding Iran, which has led to a bit of dip-buying in stocks. However, the overall market sentiment remains cautious due to ongoing constraints in the Strait of Hormuz, resulting in FX markets being in a holding pattern.
EUR/USD Dynamics
The EUR/USD pair has edged back above the 1.15 mark, but the conviction behind this movement is still lacking. The upcoming policy updates from both the Federal Reserve (Fed) and the European Central Bank (ECB) are expected to play a significant role in shaping market sentiment. Traders are currently hesitant to take strong positions ahead of these announcements, although there is a slight bias towards the dollar, especially if oil prices begin to rise again.
Oil Prices and Dollar Correlation
Interestingly, the traditional correlation between rising oil prices and a strengthening dollar has begun to weaken. Typically, higher oil prices support the dollar through inflationary pressures; however, this relationship has not held as firmly in recent days. This could indicate that markets are looking beyond current geopolitical tensions or are simply adjusting positions ahead of the Fed's decision.
Federal Reserve Outlook
No rate changes are anticipated from the Fed, but attention will be focused on the Dot Plot, which currently suggests one rate cut before the end of the year. If the Fed scales back these expectations, the dollar could see a short-term boost. However, the fluid geopolitical backdrop may lead to vague forward guidance from Jerome Powell, particularly regarding the inflation impact of oil prices.
European Central Bank Considerations
Following the Fed's announcement, the focus will shift to the ECB. While the ECB remains committed to addressing inflation, the growth outlook is becoming increasingly challenging due to rising energy costs and geopolitical uncertainties. This may prompt a more cautious tone from the ECB, potentially tempering hawkish market expectations.
Technical Analysis of EUR/USD
From a technical perspective, the EUR/USD pair has shown some stability above the 1.14 level, aligning with last summer's lows, and has reclaimed the 1.15 handle. However, the overall structure appears bearish, with lower highs in place. Resistance around 1.1560 could limit any upward movement, suggesting that the broader bias may still favor the downside. A decisive move below 1.15 would likely reinforce bearish momentum.
Conclusion
The near-term forecast for EUR/USD is expected to be influenced more by oil price movements than by traditional interest rate differentials. A hawkish surprise from the Fed combined with rising oil prices could strengthen the dollar, while stabilization in energy markets may allow the EUR/USD to drift sideways or even rise slightly.