Euro against market logic

EUR/JPY

Key zone: 184.00 - 185.00

Buy: 185.50 (after retesting the 184.50 level); target 187.50; StopLoss 185.00

Sell: 183.50 (against a strongly bearish backdrop) ; target 181.50-180.00; StopLoss 184.00

Amid the escalation of the conflict in the Middle East, the euro is showing strength — contrary to the classical market model, where rising oil prices and geopolitical tension typically support the dollar and put pressure on the European currency.

The key driver of the current move is a reassessment of expectations regarding Federal Reserve monetary policy and a temporary decline in the geopolitical premium. The market is pricing in the possibility of an earlier policy pivot by the U.S. regulator, while the “truce” announced by Trump is not perceived as a final resolution of the conflict.

• The derivatives market (Fed Funds futures) is already pricing in more than a 40% probability of a rate cut by September. The main driver is growing stagflation concerns. In the event of Fed easing, the dollar loses its key advantage — yield — creating room for euro growth, even without fundamental support.
• An additional factor was the sharp decline in the geopolitical premium following the announcement of a two-week truce with Iran. Oil corrected lower, risk appetite increased, and the FX market shifted to active position rebalancing.
• Markets interpreted Trump’s ultimatum and the pause in hostilities as temporary stabilization, triggering profit-taking in the dollar and oil. For the euro, this is a short-term positive: in the absence of new attacks, Europe gains time to stabilize raw material imports. However, escalation risks remain.
• Increased demand for risk has reduced interest in the dollar as a safe-haven asset. The dollar index fell toward the lower boundary of the 98 level, although it had recently tested 100.

Reminder:

Since the end of February, the dollar had been strengthening almost without corrections. This was driven not only by safe-haven flows, but also by a fundamental factor: the U.S. status as a net oil exporter made its economy more resilient to the energy shock compared to import-dependent Europe and Asia.

As soon as the risks of an oil collapse temporarily declined, the market began actively taking profits on dollar positions. As a result, in just one session, the U.S. currency lost more than half of the gains accumulated since the start of hostilities on February 28. The most notable gains against the dollar were shown by high-risk currencies — the South African rand and the Swedish krona, both rising by about 2%.

At the same time, the behavior of retail participants raises questions: traders are actively buying the euro on the rally, ignoring the lack of stable signals. The oversold condition has not yet fully played out, cross rates do not even show basic correction, and the reversal signal in EUR/USD remains unstable. The current EUR/USD momentum lacks a solid fundamental basis.

And what is the result?

Despite statements by the parties about “victory,” the conflict in the Persian Gulf is far from over. Talks are scheduled for April 11 in Islamabad, but fundamental risks remain. The dollar is losing ground amid profit-taking and rising risk appetite.

The current euro rally is logical, but temporary. Market euphoria may quickly give way to correction with any escalation. Buying the euro at current levels requires increased caution.

So we act wisely and avoid unnecessary risks.

Profits to y’all!