Prediction:
"For seven years Philip's fortunes will prosper,
He will reduce the Arab army,
Then, halfway through, things will perplexedly turn against him,
A young onion will destroy his fortune."
What happened:
Catholic King Philip II of Spain started ruling the country in 1556, and Spain became unbelievably wealthy for the first part of his reign. "Seven" could be interpreted biblically, meaning "a long time."
His success, however, came to an unexpected halt in 1587 with the execution of Mary Queen of Scots, who was also Catholic. Her death effectively ended his alliance with England. A year later, he tried to invade England with his Spanish Armada fleet of ships, but England thwarted him.
The quatrain also hints at the Battle of Lepanto, where Spain slaughtered the fleet of the Ottoman Empire, an area to the South inhabited by many Arabs. Philip would later call for Muslim expulsion from Spain.
Lastly, the "young onion" refers to 36-year-old Henri IV of France, a Huguenot and thus, Protestant. He and Philip disagreed on religion and battled until Henri's death.