EUR/USD: euro rebound is already out of breath

In a foreign exchange market increasingly uncertain about the duration of the war in the Middle East, the EUR/USD remains under pressure, at the end of a short sideways move below its 200-day moving average (brown line), a long-term trend line that was abruptly broken on 3 March with the surge in oil prices. These prices, still very firm, have nevertheless retreated: after peaking at $119.49 on Monday, a barrel of Brent crude is currently trading at $87.06.

What the market fears most is a situation, particularly in Europe, where resurgent inflation and sluggish growth coexist - a configuration known as stagflation - which would make the work of the major central banks very difficult. The Fed will conclude another Monetary Policy Committee meeting next week, which will inevitably be impacted by geopolitical factors.

Paolo Zanghieri, senior economist at Generali Investment, predicts that "the Fed will keep its key interest rate unchanged at next week's meeting. The FOMC faces the challenge of updating its economic and monetary outlook amid significant uncertainty, fueled by both the ongoing Gulf War and concerns about the labour market's resilience in the face of artificial intelligence."

While crude oil prices have recovered some of the losses suffered since the start of the conflict, thanks to comments from Trump and the IEA's provision allowing the use of strategic reserves, currency traders remain worried about the war's duration.

"A prolonged conflict increases the risk of destabilisation in the region, raises the potential for more serious damage to key infrastructure, and risks having a more lasting impact on energy supplies. While there are some ways to mitigate the short-term impact, such as transporting oil via pipeline to ports outside the Persian Gulf or releasing strategic reserves outside the Middle East, these are either inherently temporary or insufficient to offset the prolonged restrictions in the Strait of Hormuz," comments Oliver Blackbourn, Portfolio Manager, and Adam Hetts, Global Head of Multi-Asset at Janus Henderson.

Meanwhile, the second half of the week, rather quiet on the US economic data front, will pick up with consumer prices this Wednesday, weekly jobless claims on Thursday, and PCE prices, durable goods orders, GDP, household spending and income, and the U-Mich consumer confidence index on Friday. Quite a lineup!

Right now, the EUR/USD is trading at $1.1601.

KEY TECHNICAL ELEMENTS
Monday's sharp drop ended a period of consolidation above a 100-day moving average, which has now been decisively broken. The signal is negative ahead of the crucial test of the 200-day moving average (in brown). This long-term trend line was broken sharply on Tuesday, March 3rd, amid significant volatility.

MEDIUM-TERM FORECAST
Based on the key technical factors mentioned above, our medium-term outlook for the EUR/USD is negative.

Our entry point is $1.1608. The price target for our bearish scenario is $1.1203. To protect your capital, we recommend placing a stop-loss order at $1.1736.

The expected profit of this strategy is 405 pips and the risk of loss is 128 pips.