FUNDAMENTAL
OVERVIEW

USD:

The US dollar regained some ground as both Trump and Iran rejected the respective war-ending proposals calling them unacceptable and leaving the two sides miles apart on any
potential agreement. Moreover, Israeli PM Netanyahu confirmed that the removal
of Iranian nuclear material remains an active war priority, and separate
reports indicated that Trump told Netanyahu directly he wants to go in on
Iranian nuclear sites.

This kind of headline noise has been going on for several weeks and kept
the price action in rangebound mode as traders continued to wait for new
developments before picking a direction.

Looking ahead, the Fed is slowly abandoning the easing bias amid resilient
US data and elevated energy prices. The reopening of the Strait could weigh on
the greenback in the short-term as oil prices will likely crater and rate cut
bets will increase.

After that though, the focus will quickly turn back to the Fed and the
economic data. With the end of the war, the increase in economic activity could
keep inflation higher for longer and eventually even require rate hikes to
bring it sustainably back to the 2% target that the Fed has been missing since
2021.

There’s also another scenario where the Strait remains closed for longer
and oil prices stay elevated with the risk that the Fed turns hawkish and gives
the greenback a strong boost given the bearish positioning on the dollar.

EUR:

On the EUR side, a June
rate hike is not basically a done deal as policymakers hinted that the
situation in the Middle East and oil prices will need to change markedly to
hold them off from delivering a rate hike.

The market is pricing in an
84% chance of a rate hike in June and a total of 68 bps of tightening by
year-end (almost 3 rate hikes). This makes it harder for the euro to rally on
interest rate expectations as the ECB is unlikely to “outhawk” the market
pricing.

The recent economic data
has been highlighting the ugly combination of weaker economic activity and
stronger price pressures. There was no strong case for multiple rate hikes. The
ECB wants to err on the cautious side and deliver an insurance hike if the
situation doesn’t change before June.

After that, we can expect
the central bank to stay on hold until September as they gather more data over
the summer.

EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME

On the daily chart, we can
see that EURUSD bounced around the 1.1650
support and rebounded into the 1.18 handle. 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 can
see the price action is now confined between the resistance zone around the
1.18 handle and the upward trendline. From a risk management perspective, the
buyers will have a better risk to reward setup around the trendline to keep
pushing into new highs. The sellers, on the other hand, will likely continue to
step in around the resistance with a defined risk above it to target a pullback
into the 1.1650 support.

EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME

On the 1 hour chart, there’s not much we can add here as the sellers will
likely continue to lean on the resistance to keep targeting new lows, while the
buyers will either wait for a pullback into the trendline or a break above the
resistance to pile in for new highs. The red lines define the average daily range for today.

UPCOMING CATALYSTS

Tomorrow we get the US CPI report. On Wednesday, we have the US PPI data. On
Thursday, we get the US Retail Sales report and the latest US Jobless Claims
figures.