FUNDAMENTAL OVERVIEW
USD:
The US dollar rallied across the board yesterday on safe haven demand as US-Iran conflict erupted over the weekend. The main driver though was the market’s realisation that rate cuts might not come as soon as expected.
In fact, higher oil prices will eventually put upward pressure on inflation and yesterday’s ISM Manufacturing PMI showed how wrong the market has been in being so dovish on the economy. The data was hot for the second consecutive month, so the one-off narrative was put to rest.
Moreover, the prices index jumped to the highest level since 2022, in another sign that inflationary pressures remain high. Traders pared back their rate cut bets with the total easing by year-end now seen around 45 bps vs 58 bps on Friday.
EUR:
On the EUR side, nothing has changed on the macro side, but the US-Iran conflict led to a surge in energy prices which are feeding into higher inflation expectations. The Eurozone CPI today was higher than expected which coupled with the higher energy prices is leading to rate hike bets.
The market is pricing a 21% chance of a rate hike in June already and 50% by the end of the year. On the other hand, ECB policymakers are cautioning against reacting too fast to Middle East events as they could end up being transitory like in the past.
EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that EURUSD is approaching the key swing level at 1.1575. That’s where we can expect the buyers to step in with a defined risk below the level to position for a rally back into the 1.18 handle. The sellers, on the other hand, will look for a break to increase the bearish bets into the 1.14 handle next.
EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, there’s not much we can add here as the nearest key level is the swing point at 1.1575. We need to zoom in to see some more details.
EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we have a downward trendline defining the bearish momentum. If we were to 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. The buyers, on the other hand, will look for a break higher to increase the bullish bets into the 1.1740 resistance. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow we have the US ADP and the US ISM Services PMI. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US NFP report. The data might not matter much this week amid the US-Iran conflict.
