Credit Agricole was already skeptical about any positive developments from US-Iran talks and their call was vindicated after seeing how things transpired over the weekend. The negotiations broke down and the US is now placing their own blockade on the Strait of Hormuz. It could be a case of markets still trying to hang on to whatever optimism that is left. However, Credit Agricole noted at the end of last week that we’re not quite at a juncture in witnessing a reversal to the dollar trend just yet.
“We doubt that the latest FX price action is the beginning of a downtrend for the USD, however. This is because of two considerations: (1) there is still a huge amount of uncertainty in the Middle East, suggesting that the conflict is far from resolved and delaying any normalisation of the flow of shipping through the Strait of Hormuz; and (2) a sustained decline of global energy prices remains a distant prospect and would suggest that the economies of energy importers like the Eurozone are still to experience the negative consequences from the energy supply shock triggered by the war.
This could mean that demand for the safe-haven USD may not weaken significantly further and could undermine the appeal of EUR-denominated assets for example.”
EUR/USD opened with a gap down today but is still keeping close by around the confluence of its key daily moving averages at the 1.1670-90 region
