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viewed as outdated.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
EURUSD – daily
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
EURUSD – 4 hour
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
EURUSD – 1 hour
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.
