EUR/USD Price Forecast: Euro Slides to 1.1603 as Dollar Surges — Morgan Stanley Targets 1.13

EUR/USD Forecast: The Pair Is Fighting for Its Life at 1.16 While Three Scenarios Could Send It to 1.13 or Back to 1.18

EUR/USD closed the week near 1.1603, having shed significant ground from the late February highs around 1.18. That is a move of roughly 177 pips in under two weeks — not a gradual drift but a directional repricing driven by a single dominant force: the U.S. dollar's safe-haven bid in response to the Iran war and the cascading energy shock that followed. The dollar index (DXY) posted its largest weekly gain in more than a year, closing near 98.85. Every major currency pair involving the dollar has felt that compression, but the euro's vulnerability is structural in a way that makes the current setup particularly dangerous for anyone holding long EUR/USD positions.

The pair is now dancing on the 200-day exponential moving average while simultaneously sitting inside a critical support zone that stretches from 1.16 down to 1.15. That zone is not an abstract technical level — it is the price range where the market has previously found buyers on multiple occasions. The question right now is whether those buyers show up again or whether the support dissolves under the weight of $90 crude, a stagflating U.S. economy, and a European Central Bank caught between fighting energy-driven inflation and protecting growth. The answer to that question determines whether EUR/USD finds equilibrium at current levels or begins a move toward 1.13 — Morgan Stanley's severe disruption target.

Morgan Stanley's Three-Scenario Framework: The 1.13 Floor Is Not Hypothetical

Morgan Stanley has structured the EUR/USD outlook around three distinct energy supply scenarios, and the framework is worth taking seriously because it maps directly onto the only variable that actually matters right now: how long the Strait of Hormuz remains effectively closed. Under a near-term resolution scenario — meaning a rapid de-escalation of the U.S.-Israel-Iran conflict — the dollar index (DXY) would face a 0.6% retracement from current levels, and EUR/USD would climb back toward 1.18. Central and Eastern European currencies — the Polish Zloty (PLN), Hungarian Forint (HUF), and Czech Koruna (CZK) — would be the primary beneficiaries of that risk-on rotation, outperforming as geopolitical risk premium collapses.

The middle path — what Morgan Stanley calls "managed escalation" — looks largely like the current market environment. Brent crude trading near $90 per barrel, the VIX slightly above its current reading of 29.49, and only marginal dollar weakness with modest gains for risk-sensitive currencies. In this scenario, EUR/USD and the Swedish Krona (SEK) see steady but capped appreciation, while traditional safe havens like the Japanese Yen (JPY) and Swiss Franc (CHF) underperform. This is essentially a grinding sideways market — frustrating for trend traders, expensive in carry costs, and ultimately unresolvable without a clear directional catalyst.

The severe disruption scenario is where the real downside risk for EUR/USD lives. If energy supplies are choked further — Gulf producers calling force majeure, Hormuz remaining effectively closed beyond a few weeks, Goldman Sachs' $100-plus oil scenarios materializing — the dollar surges, European majors get hit hardest, and EUR/USD falls 2.1% toward the 1.13 handle. Morgan Stanley identifies the Swiss Franc as the primary beneficiary in that environment, while commodity-exporting currencies like the Canadian Dollar (CAD) and Norwegian Krone (NOK) see only marginal gains. The Swedish Krona would be the clearest G10 underperformer, and the PLN and HUF would lead CEE losses.

Rabobank Cuts Its EUR/USD Forecast to 1.16 — And Warns the November Low at 1.1469 Is Now in Play

Rabobank lowered its one-month EUR/USD forecast from 1.17 to 1.16 this week — a modest cut on paper but one that carries a pointed warning. The bank's analysis identified the dollar's recent strength as primarily safe-haven driven rather than fundamentally data-driven. That distinction matters: safe-haven flows are durable as long as uncertainty persists but can reverse violently when it clears. However, Rabobank is not forecasting clarity — it is forecasting prolonged disruption. If the Hormuz closure extends beyond a few weeks, the bank believes further dollar gains are likely, with attention shifting toward the November low near 1.1469 and the 1.14 area as the next major support zone.

The Eurozone's particular vulnerability in this environment cannot be overstated. The region is a massive net energy importer. Higher oil and natural gas prices translate directly into wider current account deficits, higher headline inflation, and downward pressure on consumer spending — all simultaneously. Rabobank projects eurozone inflation averaging approximately 2.4% in 2026, up from previous estimates, with the outcome heavily dependent on the duration of the current supply disruption. An inflation rate of 2.4% in an environment where growth is being choked by energy costs puts the ECB in an impossible position: raise rates to fight inflation and kill growth, or hold and watch the euro weaken further as the Fed eventually pivots.

The ECB vs. Fed Divergence Is EUR/USD's Core Problem

The technical setup on EUR/USD reflects a fundamental policy divergence that has been building for weeks. The Federal Reserve, despite Friday's catastrophic -92,000 nonfarm payrolls print and unemployment climbing to 4.4%, is still expected to hold rates unchanged at its March 18 meeting. Fed Fund Futures are pricing approximately a 50% probability of the first rate cut arriving in June — a timeline that has shifted dramatically in the wake of the jobs report but remains constrained by $90 crude creating inflation pressure the Fed cannot ignore. The key data that will further shift that timeline arrives next week: the February CPI report on Wednesday and Core PCE on Friday.

The ECB faces a mirror-image dilemma but with worse starting conditions. European growth was already fragile before the Iran conflict sent energy prices surging. The ECB must now decide whether to prioritize inflation — which is being pushed higher by oil — or growth, which is being crushed by the same energy shock. Christopher Lewis of FXEmpire identified this divergence directly: "questions about what the ECB is going to have to do about rising energy prices in order to stimulate the economy while the Federal Reserve is likely to still be a little bit on the sidelines." When a central bank is weighing stimulus while another is weighing hold-or-cut, the currency of the stimulus-considering institution weakens. That is the EUR/USD setup in a single sentence.

The Technical Picture: 1.15 Breaks and 1.11 Opens Up

The daily chart on EUR/USD is unambiguous about the stakes. The pair is testing the 200-day EMA while sitting inside the 1.15 to 1.16 support zone — a region that has held on multiple previous approaches. The critical level to watch is 1.15 on the downside. A decisive break and daily close below 1.15 opens a move toward 1.11 — a drop of approximately 400 pips from current levels. That is not a fringe scenario; it is the direct technical consequence of losing the one structural floor that has prevented a deeper breakdown.

On the upside, rallies from current levels are not to be trusted. Any bounce toward 1.17 to 1.18 should be treated as a selling opportunity in the current environment. The ceiling is well-defined and the macro forces driving dollar strength — energy inflation, safe-haven flows, Fed policy uncertainty, and Eurozone structural vulnerability — have not reversed. Rabobank's revised 1.16 target is effectively an acknowledgment that the pair is already trading at the bank's expected level, meaning the risk is skewed to the downside rather than the upside from here.

Beyond the immediate technical battle, the November 2025 low at 1.1469 is the next meaningful technical reference below current levels. A break there removes the last obvious support before 1.14 — Rabobank's identified next major support zone — and Morgan Stanley's severe disruption scenario targets 1.13 as the floor if the energy shock deepens. The zone from 1.14 to 1.13 therefore represents the worst-case range if the macro picture deteriorates further.

USD/CAD and AUD/USD: What the Broader Dollar Picture Says About EUR/USD

The dollar's strength is not a EUR-specific story — it is a broad USD story, and looking at adjacent pairs confirms the directional conviction. USD/CAD failed to secure a weekly close above key resistance at 1.3725/1.3733 for the second consecutive week. That resistance zone — defined by the yearly open, the 38.2% retracement of the November decline, and the 2023 swing high — has capped the pair twice, suggesting that while the dollar is strong broadly, it is not strong enough to break out against commodity currencies in a sustained way. Support for USD/CAD sits at 1.3617, backed by the 61.8% retracement of the February rally at 1.3586. A break below 1.3586 would resume the broader downtrend in USD/CAD — which, paradoxically, would suggest the dollar is losing ground against oil-linked currencies even as it gains against European ones. That divergence is actually consistent with the current oil shock: Canada benefits from higher crude prices, the Eurozone does not.

AUD/USD is stuck below 0.7150, unable to sustain momentum above that level despite the Reserve Bank of Australia having raised rates recently while the Fed is expected to cut. The pair's inability to break higher despite a fundamentally supportive rate differential suggests the broader risk-off environment and dollar safe-haven bid are overriding the policy divergence argument. A breakdown below 0.69 would shift AUD/USD to an outright bearish posture. The Australian dollar's behavior serves as a real-time indicator of whether global risk appetite is recovering — and right now, it is not.

The Verdict: EUR/USD Is a Sell on Rallies With a Target of 1.13 to 1.14

The weight of the evidence is decisively bearish for EUR/USD. The pair is trading at 1.1603, sitting on the 200-day EMA inside a support zone it may not hold. The macro backdrop — $90 crude hitting Europe harder than the U.S., a Fed on hold while the ECB considers stimulus, a dollar index at its strongest weekly gain in over a year, and a Hormuz disruption that Goldman Sachs warns could send oil to record highs — creates a combination of pressures that the euro's fundamental picture cannot withstand. Rabobank targets 1.16 in one month with downside risk to 1.1469 and then 1.14. Morgan Stanley's severe disruption scenario points to 1.13. The technical chart says a break below 1.15 opens 1.11.

The trade is clear: sell rallies toward 1.17 to 1.175, with a stop above 1.18 and a primary target at 1.14, secondary target at 1.13 if the Hormuz situation deteriorates further. The only scenario that changes this thesis is a rapid, credible ceasefire in the Iran conflict that collapses the oil risk premium and sends safe-haven dollar flows reversing. That scenario gets EUR/USD back toward 1.18. Until there is concrete evidence of de-escalation — not tweets, not signals, but actual cessation of hostilities — every EUR/USD bounce is a gift to the short side.

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