EUR/USD Outlook: Euro Corrects as ECB and Fed Signals Diverge

As a reminder, the US regulator, as expected, kept the interest rate within the target range of 3.50–3.75%. However, the tone of accompanying signals turned out to be significantly more hawkish than analysts anticipated. In the updated dot plot, the median projection still assumes only one rate cut by the end of the year, but the distribution of votes has changed: fourteen out of nineteen officials now expect no more than one easing step, while seven of them have ruled out any adjustments in 2026.

At the same time, the regulator raised its core inflation forecast to 2.7% from 2.5% in December, effectively acknowledging that the energy crisis driven by escalating tensions in the Middle East and the surge in energy prices above 100.0 dollars per barrel is creating persistent price pressure. However, more optimistic forecasts regarding Iran have recently emerged. US President Donald Trump stated that authorities of the Islamic Republic are ready to participate in negotiations, although no official confirmation has yet been received from Tehran, while Iran’s Islamic Revolutionary Guard Corps (IRGC) has declared that the conflict will continue until the threat of new attacks from numerous military bases in the region is eliminated. Nevertheless, no significant deterioration in the situation has been observed so far, and if a US ground operation does not take place, this alone could become an important stabilizing factor.

The emergence of an “energy shock” related to escalation and disruptions to shipping through the Strait of Hormuz is creating inflationary pressure for the eurozone economy, shifting the balance of risks toward tighter monetary policy. Approximately 20.0% of global oil supplies and more than 30.0% of liquefied natural gas pass through this maritime route, making it a critical element of global energy infrastructure.

Against this backdrop, ECB President Christine Lagarde’s rhetoric confirms the readiness of monetary authorities to respond to persistent deviations of inflation from the 2.0% target level. Despite keeping monetary parameters unchanged (interest rate fixed around 2.00%) at the March 19 meeting, updated inflation forecasts for 2026 were raised to 2.6% from 1.9% in December, while economic growth projections were lowered to 0.9% from 1.2%. These revisions increase the likelihood of a return to a hawkish stance. However, according to the latest Reuters survey, the regulator is expected to keep borrowing costs at the 2.00% level throughout the year. Nevertheless, around one-third of economists surveyed do not rule out a rate hike later this year.

On Friday, March 27, US investors and forex traders will focus on updated inflation expectations from the University of Michigan for March, which may reflect the first price adjustments linked to worsening geopolitical tensions in the Middle East. One-year expectations currently suggest a rise to 3.4%, while five-year expectations stand at 3.2%.

Support and resistance levels

On the daily chart, Bollinger Bands are turning sideways, while the price range remains relatively wide for the current level of market activity. MACD is turning downward, forming a new sell signal and attempting to settle below the signal line. Stochastic shows similar dynamics, retreating sharply from the 80 level, which signals overbought risks for the euro in the ultra-short term.

Resistance levels: 1.1577, 1.1600, 1.1621, 1.1655.

Support levels: 1.1529, 1.1500, 1.1450, 1.1400.

Trading scenarios and EUR/USD outlook

Short positions may be opened after a confident breakout below 1.1500 with a target at 1.1400. Stop-loss — 1.1550. Implementation period: 2–3 days.

A return of bullish momentum followed by a breakout above 1.1577 may serve as a signal to open long positions targeting 1.1655. Stop-loss — 1.1529.