It seems Iran is right — Donald Trump is negotiating with himself. First, the US president issues an ultimatum, then he retracts it and orders not to bomb Iran's energy infrastructure. First five days, then ten. The White House boss speaks of a supposed "gift" from Tehran and "productive" talks. Yet, Iran and Israel continue attacking one another, and the Strait of Hormuz remains closed. All of this convinces investors that hopes for peace are false and allows EUR/USD to fall.

The most surprising fact is that despite wild swings, oil has not hit record highs for almost three weeks. That is helped by the optimism disseminated by the White House, the gradual rerouting of shipments and barrels released from strategic reserves hitting the market.

US dollar and S&P 500 dynamics

The US dollar is rising, but does not fully keep pace with the plunge in equity indices. One driver of the greenback's strength during the Middle East conflict is its safe-haven status. At the same time, the rout in the S&P 500 during the last full week of March suggests EUR/USD should be trading much lower.

The US stock market is frightened by stagflation risk. Indeed, Bloomberg analysts cut their US GDP forecast for 2026 from 2.5% to 2.3%. They now see a higher recession risk over the next 12 months — 30%, up from 25% previously. The Fed's preferred inflation gauge, the PCE index, has risen from 2.6% to 3.1%.

However, the OECD raised its US GDP forecast from 1.7% to 2.0%, citing investments in AI technologies. Forecasts for energy-dependent Europe were cut.

OECD forecasts for European economies

The eurozone will clearly suffer more from the Middle East conflict than the United States. That is another argument for selling EUR/USD. That said, there may be some subtleties: the currency pair actually rose earlier in response to White House tariffs aimed at the EU, because investors expected Americans to bear the cost.

Thus, the EUR/USD drop shows Trump has failed to throw a lifeline with conciliatory rhetoric. This is not a trade war in the Middle East — it is a real war. Iran is not about to back down, no matter how polished the president's negotiating skills are. At the same time, escalation risks are pushing Brent back to recent highs.

Technical view on EUR/USD

On the daily chart, EUR/USD is sliding toward the lower edge of the fair value range of 1.151–1.165. A break of support at 1.151 would allow adding to shorts initiated from 1.160. Targets for the euro's downside move versus the dollar are pivot levels at 1.144 and 1.134.