EUR/USD could be in for further gains, bolstered by a two-week ceasefire deal between the U.S. and Iran, alongside expectations for diverging central bank policy and technicals.

The ceasefire news caused a fall in short-term rates, as investors adjusted their forecasts for Fed and European Central Bank (ECB) policies. Market sentiment now indicates that the Fed may hold rates steady until 2026 , with potential cuts in 2027 , while the ECB is anticipated to implement two 25 basis point hikes by the end of 2026 . This expected divergence in policy outlook is likely to lend support to the euro against the dollar.

Technically, EUR/USD has displayed bullish signals. It has surged above the neckline of a head and shoulders bottom pattern on daily charts, as well as breaching the converging 200- and 55-day moving averages. These developments reinforce a bullish signals reflected in rising daily and monthly RSIs and a recent break above the rising 10- and 21-day moving averages.

If the ceasefire holds and geopolitical tensions ease, EUR/USD could potentially rally above the key resistance level near 1.1800, setting its sights on January's monthly high.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)