EUR/USD Outlook Supported by Risk Sentiment but Hormuz Remains Key Risk

Expectations that the conflict involving Donald J. Trump and the Strait of Hormuz may ease are supporting the euro. Reduced risk of oil supply disruption and weaker support for continued conflict from major Western countries are improving sentiment toward Europe, which helps EUR/USD move higher. Also, euro area inflation keeps supporting expectations of future ECB tightening; the pair is likely to stay supported and gradually move higher.

Technically, the recent bearish move looks more like a short-term pullback after two strong bullish sessions. EUR/USD remains supported above the 1.1500 breakout level. Price retraced from the 1.1515 area. As long as this level holds, the pair can continue moving toward 1.1600 and possibly 1.1675 near the 200-day moving average. Any renewed escalation in the conflict or uncertainty around the reopening of the Strait of Hormuz could increase safe-haven demand for the US dollar and put additional downside pressure on EUR/USD.

EUR/USD Daily Chart

Bottom line: EUR/USD remains supported above the 1.1500 breakout level, with easing tensions around the Strait of Hormuz and expectations of possible ECB tightening supporting the euro, though any renewed escalation could strengthen the US dollar and limit further gains.