FX.co ★ Geopolitical illusions in the past. Forecast for the euro sharply worsened, a new wave of decline is expected

The EUR/USD pair seems to have seriously intended not only to stay above the 1.1100 mark, but also to reach the 1.1300 level, where it was before the crisis in Ukraine. Isn't it too early for the euro to start hoping for a settlement of issues between the Russian and Ukrainian sides?

The craving for risk has certainly been fixed in recent days, which is only worth the growth of the S&P 500 index - it gained 5% in three sessions. However, the markets look too optimistic. It seems that the crisis has passed. But, as they say, the higher you fly, the more painful it is to fall.

A negative shift in sentiment has already begun to manifest itself, which allows the dollar to remain stable against competitors and limits the growth potential of the EUR/USD pair on Friday.

Significant progress in the negotiations, which the markets have been relishing so much in recent days, has evaporated, or rather, it did not exist. The dialogue is underway, and this is the only fact that investors can rely on. This information was confirmed by officials of both Russia and Ukraine. The sides rejected the formed opinion about the great progress on the way to a peace agreement.

A similar message was published by Reuters. According to Western officials, there is still a big gap in the negotiations and an unwillingness to understand and accept and listen to the opponent.

The American side continues to speak out harshly against Russia's actions. US Secretary of State Antony Blinken admitted that Moscow may consider "the possibility of a chemical attack."

Markets have adapted to high-profile statements and similar news. Still, it's too early to talk about bullish stable sentiment. Geopolitical risks will gradually decrease in the coming weeks, or at least should decrease. However, not a single month will pass until the parties come to any positive decision. If they come at all, such a risk is also possible.

The euro hastened to rejoice, but the EUR/USD pair can maintain its bullish momentum, although not for long. While bulls will be able to protect the support of 1.1040, the euro will have a chance for symbolic growth.

Economists are divided in their opinions regarding the further movement of the pair. In Nordea, they are most optimistic about the euro, expecting that the exchange rate will be able to return to 1.1300 by the end of the year, since the bottom of the fall has already passed.

Danske Bank has revised its estimate for EUR/USD for 12 months. Economists expect the pair to fall to 1.0500 due to new global attitudes.

"Global production is slowing down, estimates show that the risks for the pair are downward, and the short-term consequence of the conflict in Ukraine is likely to be a further strengthening of the dollar. Thus, we continue to expect that EUR/USD may fall even more in these conditions," the bank comments.

As for the dollar index, it did not receive support from the first rate hike by the US central bank, the downward correction intensified. The US currency index sank to weekly lows, moving in tandem with lower treasury bond yields. There was a correction in the dollar, the indicator touched the 97.70 mark, from where it received the support of bulls.

At the end of the week, it tends to grow again, the bullish position remains in force. Investors continue to evaluate the start of the Federal Reserve tightening cycle. This should still support the US currency. A potential breakthrough towards 100.00 points in the near term is still highly anticipated.