FUNDAMENTAL OVERVIEW
USD:
The US dollar sold off across the board today after Trump announced on Truth Social a two-sided ceasefire agreement for two weeks while the US and Iran negotiate a lasting peace deal. The discussions will begin on Friday in Islamabad and may be extended if both parties agree.
Given the de-escalation, the risk sentiment in the markets turned around quickly and risk assets got heavily bid. As you would expect, traders went back to price in rate cuts for the Fed with now 14 bps of easing expected by year-end compared to basically zero before the ceasefire announcement.
There’s still a risk that the war could restart any time as the US and Iran haven’t officially ended the hostilities. Nonetheless, the bias has now turned bearish for the dollar given Iran’s acceptance of the ceasefire despite being against it for a long time. This will likely keep expectations positive for the negotiations.
It goes without saying that if the negotiations fail and the conflict resumes, the greenback will quickly erase all the losses and likely extend the gains into new highs.
EUR:
On the EUR side, nothing has changed as ECB policymakers have continued to reiterate their hawkish bias while calling for patience given the unpredictability of the US-Iran conflict. The war might really end in the next two weeks and that would vindicate the central bank’s stance.
The recent data showed what everyone expected to happen to the economy, that is higher headline inflation and weaker economic activity. In case the war really ends, the ECB will look through the short-term data and keep their neutral stance, while the market will keep on erasing the rate hike bets.
We already got some dovish repricing as traders are now pricing in two rate hikes by year-end compared to three before the ceasefire announcement.
EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that EURUSD eventually broke above the major downward trendline and extended the gains above the 1.17 handle today following the US-Iran ceasefire announcement. There’s not much we can glean from this timeframe, so we need to zoom in to see some more details.
EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we have a support zone around the 1.1630 level. If we get a pullback, we can expect the buyers to step in around the support with a defined risk below it to keep pushing into new highs. The sellers, on the other hand, will look for a break lower to extend the pullback into the next trendline around the 1.1560 level.
EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see the price is trading around the upper bound of the average daily range for today. In such instances, we can generally see some consolidation or a pullback before the next move. We also have a minor trendline around the 1.1630 support which should technically strengthen the support zone and give the buyers more conviction to step in there.
UPCOMING CATALYSTS
Today we have the FOMC meeting minutes. Tomorrow, we get the US PCE price index and the latest US Jobless Claims figures. On Friday, we conclude the week with the US CPI report and the University of Michigan Consumer Sentiment survey. As a reminder, we have also the US-Iran negotiations in Islamabad on Friday, which are going to be more important than the data.
