EUR/USD extends losses amid the US-Iran stalemate; traders await new catalysts

FUNDAMENTAL OVERVIEW

USD:

The US dollar has been gradually strengthening since Tuesday as the US-Iran stalemate led to some profit-taking on bearish dollar bets. There’s still no clear sign of a second round of talks after Iran refused to send a delegation to Islamabad on Tuesday due to the US blockade in the Strait of Hormuz.

The only good thing that is holding everything from puking hard is the ceasefire. Just today the Israel and Lebanon ceasefire got extended by another three weeks and the US-Iran ceasefire looks to be open-ended.

In the meantime, everyone has been replenishing their military stockpiles, with the US sending more ships and military forces to the Middle East. Traders will need to stay nimble because things can get ugly very quickly.

The price action continues to be driven by US-Iran headlines, and this is unlikely to change until we get an official resolution.

EUR:

On the EUR side, nothing has changed as ECB policymakers continue to reiterate their hawkish bias while calling for patience given the unpredictability of the US-Iran situation. A rate hike in April is now off the table after the pushback from several members, but June is still seen as live with the market pricing in a 67% probability.

The PMIs yesterday highlighted the bad combination of weaker economic activity and stronger price pressures. This complicates the job for the ECB as they can only work on demand and therefore risk exacerbating the economic damage.

In case the war ends before the June meeting, the ECB will likely look through the short-term impact and keep their neutral stance at least until September as they gather more data in the summer.

If the current stalemate drags on and the supply disruptions persist, recession fears will likely increase, which should ultimately weigh on the euro. On the other hand, a resolution might keep the euro supported in the short-term on better risk sentiment.

EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME

On the daily chart, we can see that EURUSD has extended the pullback this week amid the US-Iran stalemate, with the major support around the 1.1640 level now getting in sight. If the price gets there, we can expect the buyers to step in with a defined risk below the support to position for a rally into the 1.20 level. The sellers, on the other hand, will want to see the price breaking lower to pile in and target a move back into the 1.14 handle.

EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

On the 4 hour chart, we have a downward trendline defining the current pullback into the support. We can expect the sellers to continue to lean on the trendline to keep pushing into new lows, while the buyers will look for a break to pile in for a rally into new highs, although the risk to reward setup would be better around the support.

EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

On the 1 hour chart, there’s not much we can add here as the sellers will likely continue to lean on the trendline to keep pushing into new lows, while the buyers will look for a break to pile in for new highs. The red lines define the average daily range for today.

UPCOMING CATALYSTS

Today we conclude the week with the final University of Michigan Consumer Sentiment report, but the focus will remain on the US-Iran headlines.