EURUSD erases all the war-led losses amid US-Iran deal optimism. What’s next?

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                        <p class="MsoNormal">FUNDAMENTAL
OVERVIEW

USD: The US dollar extended the losses yesterday as the unwinding of the war-led positions on positive US-Iran deal expectations kept weighing on the greenback. The second round of negotiations are expected to start tomorrow. Trump delivered some upbeat remarks tonight mentioning that we’re going to be watching an amazing two days ahead. Everything now hinges on US-Iran talks. If negotiations were to break down again, we might see a short-term rally in the greenback, but as long as the ceasefire holds, the upside could remain limited. On the other hand, a peace deal might see the dollar extending the losses although a “sell the fact” type of reaction remains a risk. The market is now pricing in 10 bps of easing by year-end and that might increase on a peace deal. I think the market might get disappointed further down the road as the boost to economic activity amid a resilient labour market and rate cut expectations will likely keep inflation above the 2% target. 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 situation and the impact on the economy. 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 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.

EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME On the daily chart, we can see that EURUSD surged into the 1.18 handle as the market erased the entire war-led selloff. We now have a support zone around the 1.1640 level. If we get a pullback into it, we can expect the buyers to step in with a defined risk below the support to position for a rally into the 1.20 handle. The sellers, on the other hand, will look for a break to pile in for a drop into the 1.14 handle next.

EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME On the 4 hour chart, we have a trendline defining the bullish momentum. We can expect the buyers to continue to lean on the trendline with a defined risk below it to keep pushing into new highs. The sellers, on the other hand, will look for a break to extend the pullback into the 1.1640 support zone.

EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

On the 1 hour chart, there’s not much we can add here as from a risk management perspective, the buyers will have a better risk to reward setup around the trendline. The sellers, on the other hand, will want to see the price breaking lower to gain more conviction and extend the pullback into new lows. The red lines define the average daily range for today.

UPCOMING CATALYSTS

< p class="MsoNormal">Tomorrow we get the latest US Jobless Claims figures, but the focus remains on the second round of US-Iran negotiations expected in the next two days. This article was written by Giuseppe Dellamotta at investinglive.com.

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