Executive Summary
EUR/USD trades at ~1.148, down 4.6% from the January 2026 high of 1.2019, caught in an acute tug-of-war between structural EUR-positive forces (German fiscal expansion, narrowing rate differentials, 16% undervaluation to PPP) and a devastating exogenous shock (the Iran-US war driving Brent above $110/bbl, TTF gas up 70%, and safe-haven USD demand). The ECB has pivoted from dovish to an explicit tightening bias at the 19 March meeting, with markets now pricing 2–3 rate hikes in 2026 — the most violent repricing in ECB history. The eurozone faces a classic supply-side dilemma: headline HICP is set to spike toward 2.5–3.0% in March (German flash at 2.8%, Spain at 3.3%), yet growth is collapsing (Composite PMI 50.5, ZEW at −0.5, IFO at 86.4). Asset managers hold near-record EUR longs (+288K CFTC contracts, 95th+ percentile), creating asymmetric downside risk if the 6 April expiry of Trump's Iran strike pause triggers escalation. Our tactical stance is Bearish EUR (conviction 3/5, confidence 62%) on the energy shock, safe-haven flows, and positioning vulnerability; our strategic stance is Bullish EUR (conviction 3/5, confidence 58%) on German fiscal stimulus, structural revaluation, and eventual geopolitical normalisation. The key tension: the euro's structural supports are real but the path to realising them runs through what may be the most dangerous geopolitical environment since 2022.