EUR/USD Forecast: Euro Holds $1.1818, Iran Strikes and a Coiled DXY Set Up the Most Volatile March Open in Years

EUR/USD Forecast: Euro Holds $1.1818 as the Dollar Stalls at Key Resistance — Iran Strikes, Hot PPI, and a Coiled DXY Set Up the Most Volatile March Open in Years

EUR/USD closed Friday at 1.1818, barely changed on the session, capping a week that delivered plenty of headlines but surprisingly little directional resolution. The pair held within its February range despite a hotter-than-expected U.S. Producer Price Index, a Supreme Court ruling that invalidated emergency tariffs, and a U.S. Dollar Index (DXY) that spent five of the last seven sessions failing to break through the 97.94 Fibonacci resistance level. Then, after the close, the United States and Israel launched coordinated military strikes against Iran — an escalation that redefines the macro landscape heading into March and injects a variable that no model, no moving average, and no central bank forecast was built to handle.

The question now is deceptively simple: does the dollar catch a safe-haven bid from the Iran conflict, or does the euro benefit from a flight out of U.S. assets that accelerates the greenback's structural decline? The answer will determine whether EUR/USD breaks above 1.20 — a level Scotiabank flagged as achievable just two weeks ago — or rolls back toward the 1.17 support that has anchored the pair since mid-February.

The Dollar's Failed Breakout at 97.94 — DXY Coiled and Ready to Snap

The U.S. Dollar Index tested the 97.94 resistance level on three consecutive days this week and failed every single time. Over the past seven sessions, five have ended with the DXY pressing against that same ceiling without breaking through. This is not a minor technical detail — it is the defining feature of the dollar's price action heading into March.

The 97.94 level carries significant historical weight. It set the lows last April, came in as support during October and December, and reappeared as resistance in early February. When a price that has functioned as both support and resistance across multiple cycles holds the highs for two consecutive weeks, it tells you the market is evenly split between buyers and sellers — and something has to give.

On the support side, DXY has defended the 97.33–97.46 zone, maintaining a pattern of higher lows that keeps an ascending triangle formation intact. The bullish structure is not dead, but the persistent failure at resistance is creating frustration for dollar longs. Friday's DXY close near 97.57–97.64 sits in no-man's land — above support, below resistance, coiled tightly enough that the next directional move should be sharp.

If DXY breaks above 97.94, the move will likely need help from USD/JPY, which has been the primary transmission mechanism for dollar strength in this cycle. The yen pair is currently trading in the 154–156 range, with the 160.00 level representing a line in the sand that Japan's Finance Ministry has defended aggressively in the past. The last time USD/JPY breached 160, it triggered a 2,000+ pip reversal. That history creates a natural ceiling for dollar bulls — and by extension, a floor for EUR/USD bears.

Hot PPI, Cold Reaction — Why Core Inflation at 3.6% Failed to Move EUR/USD

Friday's U.S. Producer Price Index report was unambiguously hot. Headline PPI rose 0.5% month-over-month versus a 0.3% consensus, with the annual rate hitting 2.9% against 2.6% expected. Core PPI — stripping out food and energy — surged 0.8% month-over-month, nearly triple the 0.3% estimate, pushing the year-over-year rate to 3.6%, up from 3.3% and well above the 3.0% forecast.

In a normal environment, a core PPI print of 3.6% would send the dollar ripping higher and push EUR/USD sharply lower. That didn't happen. The pair dipped briefly below 1.1800 before recovering to close essentially flat. The DXY climbed to approximately 97.85 and then faded, unable to convert the inflation surprise into a breakout above 97.94.

The market's non-reaction is telling. It suggests that growth fears are outweighing inflation fears — the same dynamic visible in the bond market, where the 10-year Treasury yield fell to 3.961% despite the PPI shock. Rate traders are not pricing in any change at the Fed's March or April meetings. June cut odds sit below 50%, and the July probability stands at roughly 68% per CME FedWatch. The market is looking through today's inflation print and pricing in a slowing economy that will eventually force the Fed's hand.

For EUR/USD, this means the dollar's yield advantage is perceived as shrinking — not because the Fed is cutting now, but because the trajectory points toward easing later in 2026. Every basis point of expected rate differential compression between the Fed and ECB works in the euro's favor over the medium term.

German CPI Softens — ECB Rate Path Stays Gradual

On the European side, Germany's February CPI rose just 0.2% month-over-month, below the 0.5% consensus, with the annual rate decelerating to 1.9% from 2.1% — undershooting the 2.0% forecast. The harmonized index (HICP) came in at 0.4% monthly and 2.0% annually, also slightly below expectations.

Softer German inflation reinforces the case for a gradual ECB easing path, but the key word is gradual. Eurozone headline inflation remains more persistent at 2.8%, and the ECB has shown no urgency to accelerate cuts. The interest rate differential — ECB at 3.25% versus the Fed at 4.50% — still favors the dollar in carry terms, but that gap is narrowing in forward space as markets price greater cumulative easing from the Fed than from the ECB through 2027.

The Iran Variable — Safe Haven or Dollar Sell Trigger?

Everything described above was the landscape before bombs started falling on Tehran. The coordinated U.S.-Israeli strikes against Iran, launched Saturday, and Iran's immediate retaliation against four U.S. military bases, introduce a geopolitical variable that does not have a clean historical analog for EUR/USD positioning.

The conventional wisdom says geopolitical escalation strengthens the dollar because the greenback is the world's primary safe-haven currency. That was true in 2014 (Crimea), 2022 (Ukraine), and during previous Middle East flare-ups. But the 2026 context is different in a critical respect: the dollar is already structurally weakening. The trade-weighted index has fallen 7.2% year-over-year on the broad measure and 9.3% on major currencies. UBS forecasts the euro reaching $1.22 by end of Q1. Record foreign holdings of U.S. Treasuries mean the safe-haven flow is already in the price — there is less marginal capital waiting to rush into dollars than in prior crises.

Rabobank's analysis captures the tension well. The bank notes that prolonged trade uncertainty — now compounded by military conflict — can weigh on business confidence and investment. Countries are actively diversifying trade relationships, including greater engagement with China. Over time, that represents a structural headwind for the dollar. For now, strong U.S. consumption, solid GDP growth at 2.4%, and resilient productivity offer support. But if the Iran conflict disrupts oil supply, pushes crude toward $80+ (Barclays' scenario), and reignites inflation, the Fed's hands are tied — they cannot cut rates into an oil shock, which removes the easing catalyst that EUR/USD bulls have been counting on.

The most likely near-term scenario: a brief dollar bid on Monday's open as safe-haven flows kick in, followed by a fade as the market assesses whether the conflict will be contained or expand. If it expands — if shipping lanes are disrupted, if oil hits $85, if additional countries are drawn in — the dollar could paradoxically weaken as the U.S. fiscal position deteriorates further and the global appetite for dollar-denominated assets erodes.

EUR/USD Technical Structure — Falling Wedge, Higher Lows, and the 1.1748 Floor

The technical picture for EUR/USD is constructive despite the lack of directional conviction this week. The pair has built a series of higher lows since the 1.1748 Fibonacci support level was established two weeks ago. That support has held cleanly, creating a falling wedge formation — a pattern that technical analysts typically approach with a bullish reversal bias and breakout potential.

Resistance sits at 1.1837, which the pair has tested but not decisively broken. The 20-day Exponential Moving Average has acted as persistent overhead resistance throughout February, rejecting upward moves on multiple occasions. This ceiling effect, combined with the rising floor at 1.1748, is compressing the range — and compressed ranges resolve with explosive moves.

The directional clue comes from the higher-low sequence. Each pullback over the past two weeks has found support at a higher price than the previous one, suggesting that sellers are losing conviction. If the DXY ascending triangle breaks to the downside — meaning the dollar fails at 97.94 one too many times and sellers take control — EUR/USD is the most attractive major pair for capturing that move given the combination of rising support, a bullish reversal pattern, and big-picture Fibonacci levels that favor upside.

The alternative scenario: if DXY breaks above 97.94, likely pulled by a USD/JPY surge toward 158–160, then EUR/USD breaks below 1.1748 and the falling wedge fails. In that case, 1.1650–1.1700 becomes the next support zone and the pair reverts to the January range. CME FedWatch pricing would need to shift materially hawkish — essentially pricing out the June cut entirely — for that scenario to gain traction.

Key Levels to Watch on Monday's Open

Resistance: 1.1837 (this week's highs), then 1.1900 (psychological), then 1.1950–1.2000 (Scotiabank's breakout zone). Support: 1.1748 (Fibonacci, two-week floor), then 1.1700 (round number), then 1.1650 (January support). A daily close above 1.1837 with volume would confirm the falling wedge breakout. A daily close below 1.1748 invalidates the bullish structure.

USD/JPY at 154–156 — The Carry Trade Powder Keg That Controls EUR/USD's Fate

USD/JPY remains the pair that will likely determine whether the DXY breakout happens or fails — and by extension, whether EUR/USD moves above 1.19 or back below 1.17. The yen pair is currently showing a lower high following the late-January selloff, creating early-stage positioning that smells like institutional longs bailing before the 160.00 defense level comes into play.

The 160.00 level has been a disaster for dollar bulls. It was defended twice in 2024, with the second intervention triggering a 2,000+ pip reversal. The pair has not traded there since July 2024 for good reason — sellers consistently show up before that price can be tested. The 151.95–152.50 zone remains well-defended support, and on a shorter-term basis, the 154.45–155.00 area is viable for long positions.

The Bank of Japan's hawkish bias, with intervention risk elevated above 156, creates asymmetric risk for USD/JPY longs — which means asymmetric support for EUR/USD. If USD/JPY sellers overwhelm buyers near 156 and the pair drops toward 152, the DXY loses its most powerful engine and EUR/USD breaks higher. That is the base case if the Iran conflict triggers a yen safe-haven bid, which is the typical response.

USD/CAD, GBP/USD — Cross-Pair Signals for EUR/USD Direction

USD/CAD is testing critical support after failing twice at the 1.3727 resistance level. This was the same price that set up a double bottom last year and led to a rally above 1.4000 — but this time, it is functioning as resistance. The pullback to support keeps the door open for dollar bulls if the zone holds, but a breakdown would confirm broader dollar weakness and reinforce the EUR/USD bullish case.

GBP/USD shows a similar falling wedge structure to EUR/USD but with less conviction. Resistance at 1.3568 held on Wednesday and Thursday, leading to a pullback. The bullish structure is weaker than in the euro pair — the higher-low sequence is less clean, and the price action is less decisive. For directional trading, EUR/USD remains the preferred vehicle over cable for capturing a potential dollar decline.

Société Générale (GLE) and European Banking — The EUR/USD Macro Play in Equity Form

An underappreciated angle on the EUR/USD story is the structural repositioning happening in European banking. Société Générale (GLE), one of France's largest institutions, is in the middle of a comprehensive restructuring — cutting costs, exiting non-core businesses, tightening risk controls, and pushing growth in fee-heavy segments like specialized financing and asset management.

European bank stocks trade at significant discounts to book value compared to U.S. peers. SG's sector-adjusted P/E sits well below American money-center banks, and the combined shareholder yield from dividends and buybacks across European financials is roughly double that of the United States — a point UBS highlighted in its recent downgrade of U.S. equities to "benchmark" weight.

The capital rotation story matters for EUR/USD because equity flows drive currency flows. The MSCI World ex-US index has gained approximately 8% in 2026. Japan's Nikkei is up 17%. Europe's Stoxx 600 is up 7%. The S&P 500 is flat. When global capital migrates from U.S. equities to European and Asian markets, those flows require selling dollars and buying euros, yen, and other currencies. The restructuring of banks like Société Générale is part of a broader narrative that makes European assets more attractive at a time when U.S. valuations — 35% above international peers on a sector-adjusted basis — are looking increasingly stretched.

For anyone holding a position in EUR/USD, the European equity story is a structural tailwind. It does not drive day-to-day price action, but over weeks and months, persistent capital rotation out of U.S. assets and into European equities provides a demand floor for the euro that did not exist two years ago.

The Week Ahead — ISM Monday, Fed March 17–18, Jobs Report March 6

Monday brings ISM manufacturing data — a real-time read on factory activity that will also capture tariff-related price pressures. The number will set the tone for whether the growth-fear narrative intensifies or stabilizes. A weak print strengthens the case for Fed cuts and pressures the dollar; a strong print delays easing expectations and supports DXY.

The February non-farm payrolls report arrives Friday, March 6, at 8:30 a.m. Eastern. Consensus expects 60,000 new jobs with unemployment steady at 4.3%. A weaker number — particularly a rise in unemployment toward 4.5% — would likely break the DXY ascending triangle to the downside and send EUR/USD toward 1.19. A stronger number would give dollar bulls the ammunition to push through 97.94 and drag the pair toward 1.17.

The Fed's next policy decision falls on March 17–18. No rate change is expected, but the statement language and dot plot will be scrutinized for any shift in the timing of the first cut. CME FedWatch currently shows June odds below 50% and July at roughly 68%. Any dovish tilt in the Fed's communication would be immediately EUR-positive.

The Verdict — EUR/USD: Bullish Lean, With 1.20 as the March Target

EUR/USD at 1.1818 is a buy on dips toward 1.1748–1.1770, with a near-term target of 1.1950–1.2000.

The technical structure is bullish: higher lows, a falling wedge, and persistent support at the 1.1748 Fibonacci level. The fundamental backdrop favors the euro: the dollar is in structural decline (down 7–9% YoY on trade-weighted measures), U.S. equity valuations are 35% above international peers, buyback yields have converged, and capital is rotating toward European and Asian markets. The Fed is on a path toward cutting — the only debate is timing — while the ECB is easing more gradually.

The Iran strikes inject uncertainty but, paradoxically, may support the euro more than the dollar if the conflict disrupts oil, reignites inflation, and prevents the Fed from easing. A Fed that cannot cut because of an oil shock is a Fed presiding over a slowing economy with no policy ammunition — and that is not a bullish setup for the greenback.

The DXY's failure at 97.94 is the most important technical signal in the FX market right now. Five failed breakout attempts in seven sessions is exhaustion, not consolidation. When the triangle resolves — and the Iran headlines may provide the catalyst — the move should be decisive. If it breaks lower, EUR/USD pushes toward 1.19–1.20. If it breaks higher, driven by a USD/JPY surge, the pair retests 1.17. The probability tilts toward the former based on the higher-low sequence, the weakening dollar trend, and the capital flow dynamics favoring non-U.S. assets.

Risk management: the 1.1748 level is the invalidation point. A daily close below it flips the structure bearish and warrants cutting exposure. Above it, the trend is friendly, the wedge points up, and the macro is shifting in the euro's favor. March should deliver the resolution that February refused to provide — and the direction, based on everything converging right now, is higher.

That's TradingNEWS