EUR/USD: the euro declines following geopolitical unrest in Iran

The euro, one of the most reliable barometers of risk appetite contracted significantly against the dollar, again testing the support character of $1.15, in a market seized by the embrace of the geopolitical situation in the Middle East.

Israel proceeded with a "preemptive strike" against Iran, the Israeli Defense Minister said today, after US President Trump warned that Israel could soon strike Iranian nuclear sites. Prime Minister Netanyahu has announced that Israel has struck "at the heart" of the Iranian uranium enrichment program. Iran has riposted, Israel announcing that Tehran had launched around 100 drones towards the country.

A fresh round of talks between US and Iranian officials was scheduled Sunday in Oman as part of negotiations between the two camps with a view to a new nuclear pact, on the back of accelerating Tehran's uranium enrichment programme.

Hossein Salami, the commander-in-chief of the Guardians of the Revolution, was assassinated that night.

"The coming days will tell us what risks we will be facing, but they are clearly negative for the global economy," explains Sebastien Paris Horvitz, of LBPAM. "We cannot fear an escalation. In fact, the stock markets are reacting negatively (...) and oil prices are soaring, reaching a price around $75 a barrel (Brent), are at their highest level since the beginning of the year", the economist continues.

Yesterday however, the dollar contracted further, following an announced trade deal between China and the US, with as the main stake rare earths, and as leverage customs duties.

Donald Trump has declared that the deal with China was "concluded" subject to final approval on his part and that of Chinese President Xi Jinping. This deal will, according to him, allow a regular supply of rare earths to the American economy. "We get a total of 55% of customs duties, China 10%," he stated. Which seems to correspond has customs duties of 55% against Chinese imports, and conversely, China would apply customs tariffs of 10% towards American imports.

These Chinese rare earths constitute a key stake in the negotiations, with the US hoping to restore the pace of shipments of these strategic metals, which have slowed since the US president launched his global trade war in early April, AFP reported.

But the force is to note that the terms of the deal, which is yet to be formally signed by the two heads of state, leave the market circumspect.

In the statistical chapter, on Thursday, operators took note of a very reassuring advanced inflation indicator, prices to output, which advanced in May only 0.1%, below the consensus-set target. By the way, the US Department of Labor just unveiled 249,000 new enrollments in unemployment benefits on a weekly basis, a figure relatively close to expectations. Following today at 16:00 (EU time) are preliminary data from the US Consumer Confidence Index (University of Michigan).

Right now, the EUR/USD is trading at $1.1516.

CLES GRAPHIC ELEMENTS
On Thursday the spot broke free of a resistance area at $1.1460, an area that is already being tested early, in the form of a pullback this Friday. The absence of bullish expansion after the $1.1460 franking casts doubt as to the spot's ability to continue in the coming weeks its upward move from the bottom. The test of the 50-day moving average (in orange) will therefore be essential.

MEDIUM TERM FORECAST
In view of the key graphical factors we have mentioned, our view is neutral to medium term on the EUR/USD.

We will maintain this neutral view as long as the EUR/USD is positioned between support at $1.1460 and resistance at $1.1674.