EUR/USD Weekly Outlook – April 20, 2026: Risk Sentiment Improves, Euro Pushes Higher

• Trump is looking for a way to disengage from the war with Iran, which is weighing on his popularity. With midterm elections approaching, a turning point is needed. Markets are already pricing in the end of hostilities, but it may be too early.
• Europe welcomes the outcome of Hungary’s elections, where pro-European forces secured a victory. Energy costs and inflation pressures remain elevated, and the ECB is expected to assess incoming data before making any decisions.
• EUR/USD has surged back toward recent highs, reinforcing the idea that a calmer geopolitical backdrop would be bearish for the dollar. A move above 1.20 could open the door to a push toward 1.25 over the summer.

Trump Begins to Face Falling Approval Ratings

The fragile ceasefire imposed by the parties involved in the Gulf conflict appears to be holding – though only just. Israel continues its operations in Lebanon despite Trump’s push for a ceasefire, while Iran maintains leverage over Gulf countries by intermittently reopening the Strait of Hormuz. China’s involvement in the diplomatic process could prove pivotal in the next round of negotiations, potentially paving the way toward a more lasting resolution.

At the same time, Trump is confronting a noticeable decline in approval ratings, which could put the Republican Party at risk in the upcoming midterm elections. The outcome of the conflict, coupled with declining confidence in global trade among key partners – including Europe – may influence voter sentiment. Above all, rising inflation – once a central criticism Trump directed at Biden during the 2024 campaign – now threatens to become the decisive factor that could shift control of Congress back to the Democrats.

The Federal Reserve remains cautious. Policymakers need clearer data to assess how recent price increases are feeding into wages. There is also the lingering risk that, following a Supreme Court ruling, the U.S. Treasury may be required to refund part of the tariffs collected from businesses and consumers – a scenario that could help explain the dollar’s recent weakness.

Equity markets, meanwhile, have rebounded after a modest correction and are once again approaching all-time highs. Bonds are showing tentative signs of recovery, supported by oil prices slipping back below $100 per barrel. Against this backdrop, EUR/USD has climbed back above 1.18 – an encouraging sign of renewed strength for the euro.

EUR/USD – A Strong Rebound for the Euro

Last week, we highlighted the potential for a rebound in the euro – and the move not only materialized but exceeded expectations. From a technical perspective, three scenarios now emerge.

The most likely scenario remains continued range-bound trading, a pattern that has persisted for nearly a year. The lower boundary sits around 1.14, while the upper range is defined by the 1.19–1.20 zone.

A second scenario points to a renewed strengthening of the dollar, which would confirm a bearish head-and-shoulders pattern if the 1.14 level is broken. For now, this appears less likely, as does the third scenario: a breakout above the upper boundary. Such a move could propel EUR/USD toward 1.25 over the summer – but would likely require a dovish shift from the Federal Reserve relative to a more hawkish ECB stance.

Price action within the Bollinger Bands continues to confirm the broader sideways trend, with both currencies moving in a relatively orderly fashion over the past year. After testing the lower band, attention now shifts to the upper boundary as the next potential resistance level. A meaningful breakout will require a surge in volatility.

What could trigger such a move remains unclear. However, when the range eventually breaks, the implications are likely to extend well beyond the currency market.