FUNDAMENTAL OVERVIEW
USD:
The US dollar weakened across the board on Monday after Trump told CBS that “the war could be over soon.” Traders unwound some of their positions as expectations of a quick resolution led to a repricing of hawkish interest-rate bets, putting pressure on the greenback.
The dollar extended those losses yesterday as improved risk sentiment added further downside pressure. However, the trend reversed in the evening following reports that US intelligence assets had detected signs Iran may be preparing to deploy mines in the Strait of Hormuz shipping lane. As the prospects of a quick resolution faded, US dollar bids returned.
Today, we have the US CPI report on the agenda. Given the market’s focus on the war, investors will likely shrug off a softer-than-expected reading, as the data may already be viewed as outdated. However, a hotter-than-expected report could trigger some risk aversion. Investors may worry that if inflation was already picking up before the war began, higher oil prices could push it even higher in the months ahead.
EUR:
On the EUR side, ECB policymakers continue to stress patience and caution against reacting too fast to Middle East events. Next week, we have the ECB policy decision where the central bank is expected to keep everything unchanged.
The market is pricing a 55% chance of a rate hike in June and what traders will be focused on is whether a rate hike is indeed on the table and what would be the scenario that could force the ECB to hike rates earlier than expected.
If the US-Iran war drags on though, a rate hike will likely weigh on the euro as it would add further pressure on stock markets and economic activity.
EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that EURUSD probed below the key swing level at 1.1575 a few times but couldn’t extend the drop further. From a risk management perspective, the sellers will have a better risk to reward setup around the downward trendline to position for a move into the 1.14 handle. The buyers, on the other hand, will look for a break higher to open the door for a rally into the 1.20 handle next.
EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see the rangebound price action with the 1.1655 level acting as resistance. The sellers will likely continue to step in around the resistance with a defined risk above it to keep pushing into new lows, while the buyers will look for a break to increase the bullish bets into the trendline next.
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 1.1720 level. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we have the US CPI report. Tomorrow, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US PCE price index, the University of Michigan Consumer Sentiment survey and the Job Openings data. As a reminder, the market focus right now is solely on the US-Iran war, so the data might not matter much.
