EUR/USD: Back to the drawing board

Well...! Donald Trump's address last night - his first formal televised speech since the start of the war in the Middle East - ultimately raised more questions than it answered for the market, which is now lost in speculation about when the war will end. Worse still, the reopening of the vital artery that is the Strait of Hormuz no longer seems to be a war objective for Washington, which is leaving it to the Europeans to handle. Unsurprisingly, crude oil prices rebounded sharply, reaching $110.39 a barrel of WTI, while the euro/dollar exchange rate followed the opposite trend, at $1.1531.

The American president, Donald Trump, did indeed speak on Tuesday evening. The White House occupant stated that he anticipated the end of the war "within two weeks, maybe three," and that while an agreement with Iran was conceivable, such an agreement was not essential for the US to end the conflict.

During his speech on the night of 1 to 2 April, the president threatened to return Iran to the "Stone Age" with massive bombing campaigns for another two to three weeks. Tehran promised an "overwhelming" response.

"The messages sent by several ECB members since the start of the military intervention in Iran have been so forceful that financial markets (via swap contracts and interest rate futures) at one point priced in the possibility of two to three rate hikes in 2026...representing a potential total tightening of 50 to 75 basis points by the end of 2026 (!)," notes Alexandre Baradez (IG France), who warns of the risks of overzealous ECB action, admittedly in a very uncomfortable position.

"If this scenario were to materialise, it would constitute a real risk to economic activity in the eurozone, especially since the 2026 growth forecast was recently lowered...by the ECB, from 1.3% to 0.8%."

It is this difficulty in predicting the impact of the crisis on inflation that lies at the heart of the problem for currency traders. In any case, the risk is greater in the EU due to increased energy dependence.

The economists at Asteres take the case of France, the second largest EU economy: "The future risk is that rising energy prices will spread throughout the economy. This is the mechanism of second-round effects: faced with higher energy costs, companies may be tempted to pass these additional costs on to consumers in the form of higher prices. In turn, employees may demand pay raises to compensate for the loss of purchasing power, thus fueling a price-wage spiral. With a conflict in the Middle East, the outcome of which is uncertain, energy prices could remain high for an extended period. If inflation were to spread throughout the economy, the specter of 2022 would reappear, but with less intensity due to sluggish growth and consumption."

Right now, the EUR/USD is trading at $1.1542.

KEY TECHNICAL ELEMENTS
The spot price is currently testing its 20-day moving average (dark blue line), a dynamic resistance level since February 18th. A final pullback before a strong rebound remains the central technical scenario (50%). This test is particularly unfavorable.

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

Our entry point is $1.1525. The price target for our bearish scenario is $1.1013. To protect your invested capital, we advise you to place a stop-loss order at $1.1666.

The expected profit for this forex strategy is 512 pips, and the potential loss is 141 pips.