FUNDAMENTAL OVERVIEW
USD:
The US dollar remains under pressure amid optimistic expectations for an end to the US-Iran war. The catalyst for these expectations was Trump’s announcement on Truth Social on Monday of a five-day ceasefire aimed at paving the way for “a complete and total resolution of the hostilities”. The greenback hasn’t yet fallen to new lows as the market continues to await Iran’s response.
Late yesterday, we got another positive news that weighed on the dollar as Israel’s Channel 12 reported that a month-long ceasefire could be announced while the US and Iran negotiate 15 key points. If Iran accepts the US’s proposal, the dollar will likely extend the losses into new lows as rate hike bets would get unwound. On the other hand, a rejection might give the greenback another boost.
EUR:
On the EUR side, the recent data showed what everyone expected to happen to the economy, that is higher inflation and lower economic activity. The ECB continues to stress vigilance and maintain a data-dependent and meeting-by-meeting approach as they weigh the response to this shock.
The market is fully pricing in two rate hikes by year-end with good chances of a third. These expectations will get repricing quickly if the US-Iran war were to end in the next couple of weeks. Conversely, if things escalate further and the war drags on, the ECB will likely have to hike rates and eventually risk a recession.
EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that EURUSD pulled all the way back to the trendline. This is where we can expect the sellers to step in with a defined risk above the trendline to position for a drop into the 1.14 handle. The buyers, on the other hand, will look for a break higher to increase the bullish bets 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 into the major downward trendline. If the price falls to the trendline, we can expect the buyers to lean on it with a defined risk below it to target a break above the major trendline. The sellers, on the other hand, will look for a break lower to increase the bearish bets into the 1.14 handle next.
EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here as the sellers will have a better risk to reward setup around the downward trendline, while the buyers will look for a breakout or for a bounce around the minor upward trendline. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow we get the latest US Jobless Claims figures and a potential US-Iran meeting in Islamabad. The focus is now on US-Iran negotiations.
