With the recent de-escalation of tensions in the Middle East, marked by the announcement from Trump and Iran regarding a two-week halt in military operations while awaiting a final agreement, the influence of the conflict on crude oil prices has diminished. Previously, oil had surged to unprecedented levels, posing a risk to global inflation and compelling central banks to swiftly tighten policies to mitigate the repercussions. Through leading trading firms, the EUR/USD exchange rate swiftly bounced back to the 1.1708 resistance level—the pair’s peak in more than a month—before settling around 1.1680 at the time of this report.
The pair is likely to be affected by economic data as geopolitical tensions ease. Today, at 8:00, the minutes from the most recent meeting of the US Federal Reserve will be published, with US inflation figures set to follow at the end of the week. On the daily chart, after the recent upward rebound, the EUR/USD exchange rate has moved back into neutral territory, providing support for bulls to secure stronger gains if the requisite conditions for additional advances are fulfilled. The 14-day Relative Strength Index stands at approximately 57, positioned above the neutral line that delineates the balance between buyers and sellers in the trend.
The MACD indicator is showing an upward rebound, indicating a confirmation of the shift. Surpassing the psychological resistance level of 1.1800 is essential for forecasting the robustness of the upward technical correction. A technical scenario for a EUR/USD decline necessitates a return to the 1.1500 support level. Before the recent easing of tensions, the EUR/USD faced challenges in sustaining its position above 1.16, with increasing energy costs and geopolitical conflicts exerting pressure on the Euro. As oil markets influence immediate trends and apprehensions about deteriorating terms of trade rise, the Euro is positioned with downside risks prior to a possible recovery later this year.
In summary, the Iranian conflict will continue to be a significant element in the short term, particularly due to its influence on energy prices and the broader global economy. Nevertheless, Scotia Bank highlights hurdles to the dollar’s appreciation; “The long-term structural challenges facing the US dollar remain significant, and further evidence of weakness in the US labor market could force a reassessment of expectations for interest rate cuts by the Federal Reserve. In the short term, the seasonal effect on the dollar is expected to turn negative starting in April.”