fundamental overview
USD:
The US dollar gained some strength as Trump and Iran both rejected respective war-ending proposals as unacceptable, leaving the two sides miles apart on any potential deal. Additionally, Israeli PM Netanyahu confirmed that removing Iranian nuclear material remains an active wartime priority, and separate reports indicate that Trump told Netanyahu directly that he wanted to visit Iranian nuclear sites.
This kind of headline noise has been going on for several weeks and has kept price action in range-bound mode as traders continue to wait for new developments before choosing a direction.
Looking ahead, the Fed is gradually abandoning the easing bias amid weak US data and increased energy prices. The reopening of the strait could weigh on the greenback in the short term as oil prices are likely to rise and stakes for a rate cut would increase.
However, after that, the focus will immediately shift to the Fed and economic data. With the end of the war, increased economic activity could keep inflation high for longer and would ultimately require rate hikes to get it back to the 2% target that the Fed is missing by 2021.
There is also another scenario where the Straits remain closed longer and oil prices remain high with the risk that the Fed tightens and gives a stronger boost to the greenback while looking bearish on the dollar.
EUR:
On the euro side, a rate hike in June is basically not a done deal as policymakers have indicated that the situation in the Middle East and oil prices would require a significant change to prevent them from raising rates.
The market sees an 84% probability of a rate hike in June and a total of 68 bps of tightening by the end of the year (about 3 rate hikes). This makes it difficult for the euro to gauge interest rate expectations as the ECB is unlikely to “beat” market pricing.
Recent economic data is highlighting an ugly combination of weak economic activity and strong price pressures. Many times there was no strong case for increasing rates. The ECB may want to remain cautious and increase insurance if the situation does not change before June.
After that, we can expect the central bank to remain on hold until September as they gather more data over the summer.
EURUSD Technical Analysis – Daily Time Frame
EURUSD – Daily
On the daily chart, we can see that EURUSD bounced around the 1.1650 support and reversed into the 1.18 handle. There’s not much we can glean from this timeline, so we’ll have to zoom in to see some more details.
EURUSD Technical Analysis – 4 Hour Time Frame
EURUSD – 4 Hour
On the 4-hour chart, we can see that the price action is now confined between the resistance zone around the 1.18 handle and the upward trend line. From a risk management perspective, buyers would have a better risk rewarding setup around the trendline to hold on to new highs. On the other hand, sellers will continue to move around the resistance with a defined risk above it to target a pullback to the 1.1650 support.
EURUSD Technical Analysis – 1 Hour Time Frame
EURUSD – 1 hour
On the 1-hour chart, we can’t add much here as sellers will likely rely on resistance to target new lows, while buyers will either wait for a pullback to the trendline or a break above resistance to pile on new highs. The red lines define the average daily range for today.
upcoming catalyst
Tomorrow we will get the US CPI report. On Wednesday we have US PPI data. On Thursday, we’ll get the US retail sales report and the latest US jobless claims data.
