What doesn't kill us makes us stronger. You might think news of a breakdown in US?Iran talks would have knocked the euro out cold. The market could have reverted to the old narrative: buying the US dollar as a safe-haven asset and as the currency of a net energy exporter. Those were the forces that pushed EUR/USD down in March. But the longer the Middle East conflict drags on, the more investors grow weary of geopolitics.

The International Energy Agency (IEA) warned that high oil, gasoline, and diesel prices are already being felt by consumers. The agency said this risks causing the first annual drop in crude oil demand since 2020. On the face of it, bad news for the euro: sustained high Brent prices would hurt the energy-import-dependent eurozone. Yet EUR/USD is rising.

Dynamics of oil and EUR/USD

The situation is actually paradoxical. MUFG Research estimates that a 40% rally in oil since the start of the Middle East conflict should have knocked the major currency pair down by at least 3%. Instead, EUR/USD has returned to pre-war levels. The firm attributes this to euro?positive factors such as monetary policy divergence and a rise in global risk appetite.

Indeed, Donald Trump's comment that he had received a call from Iran helped catalyze the S&P 500's return to pre-war levels. Investors are buying the rumor of peace in the Middle East, genuinely hoping follow-up talks will take place before April 21, the expiry of the two-week ceasefire. Switzerland is reportedly ready to act as mediator this time.

The US president said a compromise had been found on most points except the key issue — Iran's nuclear program. According to a Bloomberg insider, the Americans wanted to freeze it for 20 years, while Iran sought only a five-year freeze. Supporters are ready for renewed talks, which has lifted both global risk appetite and EUR/USD.

The EUR/USD pair has come under the sway of FOMO. It also helped the bulls that speculators, in the week to April 7, increased net long positions in the US dollar to a 14-month high. It's a short step from love to hate — mass short covering of the greenback created a strong tailwind for EUR/USD.

Technically, on the daily chart, bulls quickly closed the week-open gap and stormed through resistance at the pivot level of 1.176. That level now acts as key support. As long as EUR/USD trades above it, the bias should be to buy. Targets for longs are 1.1830 and 1.1915.