FUNDAMENTAL
OVERVIEW
USD:
The US dollar extended the losses
yesterday as the unwinding of the war-led positions on positive US-Iran deal expectations
kept weighing on the greenback. The second round of negotiations are expected
to start tomorrow. Trump delivered some upbeat remarks tonight mentioning that
we’re going to be watching an amazing two days ahead.
Everything now hinges on
US-Iran talks. If negotiations were to break down again, we might see a short-term
rally in the greenback, but as long as the ceasefire holds, the upside could
remain limited. On the other hand, a peace deal might see the dollar extending
the losses although a “sell the fact” type of reaction remains a risk.
The market is now pricing
in 10 bps of easing by year-end and that might increase on a peace deal. I
think the market might get disappointed further down the road as the boost to
economic activity amid a resilient labour market and rate cut expectations will
likely keep inflation above the 2% target.
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 situation
and the impact on the economy.
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 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.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
EURUSD – daily
On the daily chart, we can
see that EURUSD surged into the 1.18 handle
as the market erased the entire war-led selloff. We now have a support zone
around the 1.1640 level. If we get a pullback into it, we can expect the buyers
to step in with a defined risk below the support to position for a rally into
the 1.20 handle. The sellers, on the other hand, will look for a break to pile
in for a drop into the 1.14 handle next.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
EURUSD – 4 hour
On the 4 hour chart, we have
a trendline defining the bullish momentum. We can expect the buyers to continue
to lean on the trendline with a defined risk below it to keep pushing into new
highs. The sellers, on the other hand, will look for a break to extend the
pullback into the 1.1640 support zone.
EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
EURUSD – 1 hour
On the 1 hour chart, there’s not much we can add here as from a risk
management perspective, the buyers will have a better risk to reward setup around
the trendline. The sellers, on the other hand, will want to see the price
breaking lower to gain more conviction and extend the pullback into new lows.
The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow we get the latest US Jobless Claims figures, but the focus remains
on the second round of US-Iran negotiations expected in the next two days.
