FUNDAMENTAL OVERVIEW
USD:
The US dollar weakened across the board on Thursday after a couple of de-escalatory headlines turned the risk sentiment around. That didn’t last long as the dollar started to regain ground on Friday after Wall Street Journal reported that the US was sending warships and thousands of additional marines to the Middle East despite Trump’s assurances that he won’t put American boots on the ground in Iran.
CBS news later doubled down on the reports saying that Trump’s administration was making heavy preparations for potential use of ground troops in Iran. Over the weekend, Trump issued an ultimatum to Iran to reopen the Strait of Hormuz within 48 hours or face strikes on key infrastructure.
The ultimatum is set to expire this late evening, but it doesn’t look like Iran is going to follow through at all, so that will likely traders on edge. Until we get a real de-escalation, the bullish US dollar trend should remain intact amid safe haven demand and rate hike bets.
EUR:
On the EUR side, the ECB kept interest rates steady with an upward revision to the inflation forecasts and a downgrade to growth. The forward guidance language was left unchanged with a data-dependent and meeting-by-meeting approach, and no pre-commitment to any rate path.
The ECB stressed that inflation implications will depend both on the intensity and duration of the conflict and on how energy prices will affect consumer prices and the economy.
The usual “ECB sources” noted that the central bank may have to start debating a rate hike at the April meeting and potentially tighten in June barring a quick resolution of the conflict.
The market went berserk on rate hike expectations with 85 bps of tightening priced in by year-end.
EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that EURUSD pulled back into the 1.16 handle last week but eventually reversed following escalatory news. If we get another pullback, we can expect the sellers to lean on the trendline with a defined risk above it to position for a drop into the 1.1395 level. The buyers, on the other hand, will look for a break higher to open the door for a rally into the 1.18 handle next.
EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we have an upward trendline defining the pullback from the 1.14 handle. If the price falls to the trendline, we can expect the buyers to lean on it with a defined risk below it to extend the pullback into the major downward trendline. The sellers, on the other hand, will look for a break lower to increase the bearish bets into the 1.1395 level next targeting a breakout.
EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we have a minor downward trendline defining the bearish momentum on this timeframe. If we get a pullback, we can expect the sellers to lean on the trendline with a defined risk above it to keep pushing into new lows, while the buyers will look for a break higher to start targeting the major downward trendline around the 1.1650 level. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow we have the Eurozone and the US PMIs. On Thursday, we get the latest US Jobless Claims figures. As a reminder, the focus is mainly on the US-Iran war, so keep an eye on the headlines.
