EUR/USD and DAX forecast: Markets steadier on de-escalation hopes

In the last couple of days, markets are increasingly attempting to price in the possibility of easing geopolitical tensions in the Middle East. We have seen, equity markets have staged a modest recovery, while the euro has stopped falling. Yet, the market’s reaction has been measured rather than exuberant. Investors appear willing to respond to positive developments, but few are ready to assume that a definitive breakthrough is imminent. The most recent shift in sentiment was this morning when remarks from Iran’s deputy foreign minister hit the wires, indicating that Iran could potentially abandon its nuclear programme if the United States offers a sufficiently attractive alternative deal. The comments were enough to trigger a quick reaction across financial markets, which later petered out somewhat. So, for now, we maintain only a cautiously optimistic EUR/USD forecast and the same for stock market such as the German DAX.

 

DAX forecast: Geopolitics driving market direction

 

Despite the improvement in sentiment, the broader geopolitical situation remains largely unchanged. The conflict is still ongoing, and there is no clear confirmation that meaningful de-escalation has begun.

 

Today’s reports of Iran willing to come to the negotiation table comes after new yesterday that Iran may have indirectly sounded out the CIA regarding potential terms to end the conflict. These reports followed comments from Donald Trump, who stated that the US Navy would protect key shipping lanes in the Middle East and that Washington was prepared to support measures aimed at safeguarding the flow of global energy supplies.

 

In theory, such assurances should provide stability to markets that are sensitive to disruptions in oil supply. In practice, however, traders remain cautious. Geopolitical headlines can shift quickly, and market participants are well aware that negotiations during conflicts rarely follow a straight path.

 

For that reason, trading behaviour has reflected cautious optimism. Investors appear comfortable buying dips in equities, but they are equally quick to lock in profits when prices rebound. Given the uncertainty surrounding the situation and the number of parties involved, that cautious approach is understandable.

 

Still, the hammer candle on the DAX chart yesterday is a sign that the market has stabilised. Let’s see if there will be much buying interest above the 24,200 level on the German stock index today.

 

 

EUR/USD forecast: technical analysis and levels to watch

 

Earlier this week, we saw a sharp plunge in the pair following the spike in oil prices. That move pushed the EUR/USD through several key support levels and briefly took price below the yearly low from January at 1.1578.

 

However, despite Tuesday’s sharp drop, the pair did not close below that level. On Wednesday, the EUR/USD once again held above 1.1578 and formed an inside-bar pattern, suggesting that selling pressure may be losing momentum. Earlier today, the pair was trading lower again, but it continued to hold above the 1.1578 level, indicating that the market appears comfortable defending that support for now.

 

 

As long as 1.1578 holds on a daily closing basis, there is a good chance that the EUR/USD could stage a recovery, particularly as risk appetite has started to improve slightly.

 

Only a daily close below that level would suggest that deeper losses could be underway, potentially opening the door for a move towards the 1.1500 handle or even lower. That said, reaching below 1.1500 would likely require another significant surge in oil prices, possibly toward $100 per barrel, along with a further escalation of tensions in the Middle East.

 

Absent that scenario, EUR/USD could stabilise and start to generate fresh bullish technical signals.

 

So far, the early signs are somewhat constructive. But for confirmation, I would like to see EUR/USD reclaim the 200-day moving average, which it broke on Tuesday. This comes in around the 1.1670 area, which also coincides with a previous support zone that could now act as resistance.

 

If EUR/USD manages to break back above 1.1670 in the coming days — ideally sooner rather than later — it would be a strong indication that the broader uptrend is resuming. From there, we could see additional technical buying emerge.

 

So, as things stand, I remain cautiously optimistic on the EUR/USD forecast. But much will depend on developments in the Middle East and energy markets.

 

Economic data could shape the next move

 

While geopolitical developments are currently dominating market attention, economic data continues to provide an important backdrop for the EUR/USD forecast.

 

Today’s economic calendar is relatively light compared with the previous session. Markets will monitor Challenger job cuts alongside the weekly unemployment claims data. Initial claims are expected to come in at around 215,000, slightly higher than the previous reading of 212,000.

 

Yesterday’s US data was broadly supportive for risk sentiment. The ISM Services PMI climbed to 56.1, comfortably above expectations of 53.5 and marking a solid improvement from the previous month.

 

Meanwhile, the ADP private payrolls, showed that private-sector employment increased by 63,000 compared with forecasts of around 50,000.

 

Attention will now shift to Friday’s U.S. Nonfarm Payrolls, which remains the most closely watched labour market report. The outcome could influence expectations for Federal Reserve policy and therefore impact both the US dollar and equity markets.

 

Source for all charts used in this article: TradingView.com

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R