FUNDAMENTAL
OVERVIEW
USD:
The US dollar regained some ground this week as US and Iran rejected the
respective war-ending proposals and US inflation data came out higher than
expected. Overall, the market remains rangebound as traders continue to wait
for new developments before picking a direction.
Looking ahead, the Fed is slowly abandoning the easing bias with more and
more policymakers talking about the need of keeping all options on the table
and some explicitly bringing up rate hikes.
The reopening of the Strait could weigh on the greenback in the short-term
as oil prices will likely fall quickly and rate cut bets will increase on
easing inflation worries.
After that though, the focus will quickly turn back to the Fed and the
economic data. With the end of the war, the increase in economic activity could
keep inflation higher for longer and eventually even require rate hikes to
bring it sustainably back to the 2% target that the Fed has been missing since
2021.
There’s also another scenario where the Strait remains closed for longer
and oil prices stay elevated, with the risk that the Fed turns hawkish anyway
and gives the greenback a strong boost given the bearish positioning on the
dollar.
EUR:
On the EUR side, a June
rate hike is not basically a done deal as policymakers hinted that the
situation in the Middle East and oil prices will need to change markedly to steer
them away a rate hike.
The market is pricing in an
87% chance of a rate hike in June and a total of 70 bps of tightening by
year-end (almost 3 rate hikes). This makes it harder for the euro to rally on
interest rate expectations alone as the ECB is unlikely to “outhawk” the market
pricing.
The recent economic data
has been highlighting the ugly combination of weaker economic activity and
stronger price pressures. There is no strong case for multiple rate hikes yet.
The ECB wants to err on the cautious side and deliver an insurance hike if the
situation doesn’t change before June.
After that, we can expect
the central bank to stay on hold until September at very least as they gather
more data over the summer.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
EURUSD – daily
On the daily chart, we can
see that EURUSD rejected the resistance zone
around the 1.18 handle and it’s now approaching the support zone around the
1.1660 level. 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 back into the
resistance. The sellers, on the other hand, will want to see the price breaking
lower to increase the bearish bets into the 1.15 handle next.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
EURUSD – 4 hour
On the 4 hour chart, we can
see the price is consolidating near the broken upward trendline. We can expect
the sellers to step in around these levels with a defined risk above the
trendline to keep pushing into the support. The buyers, on the other hand, will
want to see the price rising back above the trendline to pile in for a rally
back into the resistance.
EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
EURUSD – 1 hour
On the 1 hour chart, there’s not much we can add here as the sellers will have
a better risk to reward setup around the broken trendline, while the buyers
will need to wait for a drop into the support or a rally back above the
trendline. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we get the US Retail Sales report and the latest US Jobless Claims
figures.