FUNDAMENTAL
OVERVIEW
USD:
The US dollar sold off
across the board today after Trump announced on Truth Social a two-sided
ceasefire agreement for two weeks while the US and Iran negotiate a lasting
peace deal. The discussions will begin on Friday in Islamabad and may be
extended if both parties agree.
Given the de-escalation,
the risk sentiment in the markets turned around quickly and risk assets got
heavily bid. As you would expect, traders went back to price in rate cuts for
the Fed with now 14 bps of easing expected by year-end compared to basically
zero before the ceasefire announcement.
There’s still a risk that
the war could restart any time as the US and Iran haven’t officially ended the
hostilities. Nonetheless, the bias has now turned bearish for the dollar given
Iran’s acceptance of the ceasefire despite being against it for a long time.
This will likely keep expectations positive for the negotiations.
It goes without saying that
if the negotiations fail and the conflict resumes, the greenback will quickly
erase all the losses and likely extend the gains into new highs.
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 conflict. The
war might really end in the next two weeks and that would vindicate the central
bank’s stance.
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 really 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.
We already got some dovish
repricing as traders are now pricing in two rate hikes by year-end compared to three
before the ceasefire announcement.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that EURUSD eventually broke above the major
downward trendline and extended the gains above the 1.17 handle today following
the US-Iran ceasefire announcement. 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 have
a support zone around the 1.1630 level. If we get a pullback, we can expect the
buyers to step in around the support with a defined risk below it to keep
pushing into new highs. In such instances, we can generally
see some consolidation or a pullback before the next move. Tomorrow, we get the US PCE price
index and the latest US Jobless Claims figures. On Friday, we conclude the week
with the US CPI report and the University of Michigan Consumer Sentiment
survey
