EUR/USD & USD/JPY Face Shifting FX Forecasts Amid Middle East War

Analysts are revisiting forex forecasts across major pairs as the escalating conflict in the Middle East reshapes the macro landscape, with significant implications for EUR/USD, USD/JPY, and the broader US Dollar Index. A prolonged conflict scenario would likely bolster the US dollar through safe-haven demand and higher energy prices feeding into inflation expectations, potentially delaying Federal Reserve rate cuts. EUR/USD could face sustained downward pressure as the eurozone's energy dependence weighs on growth prospects, with some forecasters eyeing a move toward 1.0600 in a worst-case scenario. USD/JPY could see competing forces, with safe-haven yen demand offset by widening US-Japan yield differentials if the Fed maintains a hawkish stance. The DXY is being watched at the 105.00 psychological resistance level, which a sustained break above would confirm a bullish dollar trend. For traders, the key takeaway is that geopolitical risk has become a primary driver, potentially overshadowing economic data releases in the near term. Portfolio hedging and reduced leverage are prudent strategies in this environment.