EUR/USD analysis: Markets probe pre-war levels

 

There have been some conflicting reports from the Middle East today. Trump has just come out and said that Iran is about to reach an agreement, confirming earlier reports that two sides had agreed ‘in principle’ on extending the truce. Other reports have quoted Iran’s military warning continued US blockade would break the ceasefire, while Iranian foreign ministry spokesperson has said that they do not confirm any details mentioned by western media about the negotiations. Who do you believe? Well, markets certainly appear to be believing Trump. Though the dollar and oil prices rebounded slightly, markets still seemed to be leaning quite heavily toward a constructive outcome. That said, it still feels a touch premature to be pricing in a smooth resolution. While I think a degree of caution is still warranted in this EUR/USD analysis, markets are quite optimistic, judging by the big risk rally we have seen this week. Meanwhile a flurry of central bank speakers will no doubt keep things ticking over today, though it’s likely that any headlines out of the Iran negotiations will remain the dominant driver for FX.

 

 

Dollar remains downbeat as markets price in lasting peace

 

Markets are growing increasingly confident that tensions in the Middle East may be heading toward some form of resolution. The US and Iran are lining up a second round of talks but given how underwhelming the first round of negotiations proved, the current dollar levels arguably reflect a fair bit of optimism already. On that basis, the risk-reward for the greenback is starting to look more favourable on the upside. But not many people are willing to stand in the way of the dollar’s drop – or the equity market rally. Perhaps, investors are looking past the Middle East already. Yesterday’s softer-than-expected March PPI print (+0.5% m/m) didn’t help the dollar’s cause, nudging expectations towards a bit of Fed easing by year-end. We also had quite a bit of negative US data last week. Not much on the calendar today, but earnings from banks have been good.

 

EUR/USD analysis: More clarity on peace needed

 

For EUR/USD to convincingly hold above the 1.180 mark, the market likely needs far more clarity around any potential peace framework. At the moment, that clarity simply isn’t there, yet positioning suggests investors are increasingly willing to look through that uncertainty. Any tangible progress on the geopolitical front could still see the pair extend higher, potentially pushing beyond 1.1800 as the week unfolds.

 

On the data front, Eurozone industrial production came in on the soft side at just +0.4% for February, even before the recent escalation in the Middle East. With oil prices having surged, there’s a strong case to expect further pressure on the region’s industrial backdrop in the months ahead. For now, not many investors are paying much attention to data.

 

Technical EUR/USD analysis: All eyes on 1.18 handle

 

The EUR/USD reached resistance around the 1.1800 area yesterday, which is where selling initially began at the start of March, around the time the Middle East conflict escalated. This move also coincides with the S&P 500 reclaiming its pre-war levels. More broadly, we’ve seen other risk assets push higher in recent sessions amid growing optimism over a lasting peace deal in the Middle East, as talks between the US and Iran continue.

 

 

From a technical EUR/USD analysis perspective, if price can break above the 1.1800 level on a closing basis—ideally clearing the recent high around 1.1830—that would be another constructive signal for the EUR/USD forecast. In that scenario, we could see follow-through buying momentum toward 1.1900 and potentially the 1.2000 handle.

 

In terms of support, Monday’s high is now a key level to watch. We saw a sharp reversal earlier in the week, with EUR/USD forming a strong bullish candle after bouncing off its 200-day moving average near 1.1673. That puts Monday’s high, around 1.1765, firmly in focus, and this level needs to hold to maintain the current bullish bias.

 

If 1.1765 gives way, the technical outlook would likely shift back to neutral. In that case, we could see renewed selling pressure toward 1.1700, and possibly a deeper move back to the 1.1673 area.

 

Below that, the next key support zone comes in between 1.1580 and 1.1605, which marks the base of the breakout from last Tuesday.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R