EUR/USD weekly outlook: US-Iran and oil prices remains in focus

This weekly EUR/USD outlook article was written after the London close but before the close of play on Friday, and it was therefore subject to some potential volatility before the weekend. At the time of writing, the EUR/USD was trading near its session highs and was on track to post its second consecutive weekly gain after climbing back on Friday, despite the wobble on Thursday when the US and Iran exchanged strikes in the Strait of Hormuz. But on Friday, the EUR/USD bounced back as oil prices moved lower once more, with Trump suggesting that the ceasefire was still intact. This raised hopes that the two sides could eventually strike a deal that could reopen the Strait of Hormuz. But for the EUR/USD outlook to tilt decisively bullish and rise meaningfully from here, we will need to see tangible progress on that front, which hadn’t happened yet. What will the weekend bring?

 

Markets remain hopeful – for now

 

Overall, price action across financial markets last week suggested investors remained hopeful. In fact, this has been evident by a sharp improvement in risk appetite in recent weeks, with Wall Street hitting record highs, while European markets have also been pushing higher, although not as aggressively as US markets. Are markets under-pricing the risks? Perhaps. We continue to caution against excessive risk seeking in this environment.

 

Meanwhile, the latest US labour market data also helped to steady sentiment, reflecting other indicators that suggest the US economy has not yet suffered and partially helps to explain why stocks have been so buoyant.

 

The US economy added 115,000 new jobs in April, beating forecasts for a 62,000 increase. That said, revisions to February and March data left employment levels 16,000 lower than previously reported. Even so, the better-than-expected April print helped ease immediate concerns about a sharper slowdown in the US economy. This played no part in supporting the dollar whatsoever.

 

Technical EUR/USD outlook and levels to watch

 

In terms of the key levels to watch for the EUR/USD, we have the 1.1800 area, which needs to be reclaimed decisively to create a bullish breakout. The 1.1800 level has been a key area of resistance in recent times, so watch that level very carefully.

 

 

If that level gives way, then we could see the EUR/USD move towards the 1.1900 handle and possibly 1.2000 thereafter.

 

On the downside, we have a range of support coming in around the 1.1720 to 1.1750 area.

 

Below that, things would become a little more bearish if we were to break down beneath that zone, with the 200-day moving average and prior lows coming in around the 1.1670 area.

 

Below that, there’s not much in the way of obvious support levels until the 1.1575 to 1.1600 area.

 

Look ahead: US CPI

 

Looking ahead, traders will also be keeping a close eye on US CPI data due on Tuesday, May 12. Investors are likely to scrutinise the inflation numbers particularly closely amid the recent oil price shock.

 

CPI accelerated to 3.3% year-on-year from 2.4% previously, and any surprise in the upcoming release could trigger some — likely mild — volatility across currency markets, including the EUR/USD.

 

In summary, a lot will now depend on the direction of oil prices, which have come down over the last few days, falling by around $10 over the past week at the time of writing.

 

Still, we need to see meaningful progress in the US-Iran situation to completely shift the balance of risks to the downside for oil prices.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R