EUR/USD Forecast: Energy Shock, Fed Pricing, and Key Data in Focus
Author: Fawad Razaqzada, Market Analyst
Date: March 4, 2026
Market Overview
The FX market has experienced a subtle shift in tone, moving away from the dramatic impacts of surging energy prices. Investors are beginning to unwind long dollar and short equity positions, leading to a modest risk-on sentiment. This change was partly influenced by a report from the New York Times indicating that Iran had approached the CIA regarding potential terms to end ongoing conflicts. Additionally, comments from US President Donald Trump about protecting shipping in the Middle East and ensuring the free flow of energy have contributed to this sentiment.
Impact of Energy Prices
The forecast for EUR/USD is cautious, primarily due to the ongoing energy shock. The volatility in energy prices has favored exporters while punishing importers, leaving the euro particularly vulnerable. The situation in the Strait of Hormuz, where a significant portion of global oil and gas flows is at risk, has heightened market concerns. Without a meaningful improvement in the energy narrative, such as lower oil prices or a resolution in shipping disruptions, it is challenging to justify rebuilding short dollar positions.
Federal Reserve's Rate Decisions
The inflationary pressures stemming from higher energy prices have led to a hawkish repricing in the US yield curve. The Federal Reserve's ability to cut rates may be limited, especially if upcoming economic data shows improvement. Currently, markets are pricing in approximately 45 basis points of easing this year, which could be adjusted based on the performance of employment indicators, particularly the ADP employment report and the ISM services survey.
Technical Analysis of EUR/USD
The EUR/USD pair remains vulnerable to further downside, especially given the recent volatility. The key question is whether the energy shock will persist. If it does, a move towards the low $1.10s is possible. Conversely, if shipping lanes reopen, the pair may stabilize around the 1.1500 level.
On the four-hour chart, a doji candle has formed near the January low of 1.1578, suggesting a potential false breakdown. However, the overall trend remains bearish, with lower highs and lower lows being established. Key resistance is noted at 1.1670; a break above this level could signal a short-term bullish trend, while support is identified at 1.1625 and the January low at 1.1578.
Conclusion
In summary, the EUR/USD forecast is heavily influenced by energy market dynamics and the Federal Reserve's monetary policy outlook. The current market conditions suggest a cautious approach, with potential for further downside if energy prices remain elevated and geopolitical tensions persist.