EUR/USD: Fluctuations in risky assets

After the initial euphoria, the market is attempting to reassess the risk premium on oil following the announcement of a two-week truce between Washington and Tehran. While this truce brings considerable relief, it offers no indication of the content of a final peace agreement.

However, the two-week truce between the United States and Iran, announced on Tuesday, appears increasingly fragile in the eyes of the market. Consequently, the euro has experienced a setback on the foreign exchange market following Tuesday's surge.

"At this stage, it's difficult to imagine how the negotiations will proceed because, after weeks of maximalist posturing from both sides, significant points of contention remain," says Greg Kounowski, Investment Advisor at Norman K.

"For example, the US president states that the ceasefire is conditional on the complete, immediate, and safe opening of the Strait of Hormuz, while Iranian officials believe that safe passage through the strait is possible, subject to coordination with their armed forces. Furthermore, Iran is reportedly finalizing a joint toll agreement with Oman to ensure control of traffic in this strategic waterway," adds the asset management expert, who also cites "the case of Lebanon, where Israel is maintaining its offensive against Hezbollah," and that of "Iran's enriched uranium."

"Determined to cripple Iran's nuclear expertise, Washington announced that the stockpiles in question would be handed over in exchange for a partial lifting of sanctions, while Tehran, in its 10-point plan, specifically defends maintaining its enrichment policy. Overall, these differences in interpretation or the lack of mutual trust could still derail the negotiation process."

Consequently, oil prices are stabilizing at a firm level after the significant decline at the beginning of the week, followed by a rebound in a pendulum-like pattern mid-week. "The situation can obviously change at any moment, but for now, confusion reigns, and this has led to a rebound in oil prices from $91 to nearly $100, even though we are still far from the peak of $117 reached Tuesday afternoon," summarises Alex Baradez (IG France).

This market situation is also reflected in bond yields, particularly the most sensitive ones, especially French and Italian bonds. The DAX and CAC 40 consolidated in the latter part of the week, as did, unsurprisingly, the Euro, the benchmark barometer of risk appetite.

This focus of market attention on the geopolitical context almost overshadowed the relentless stream of macroeconomic data being released. Yesterday, the market learned of a downward revision to the final figures for fourth-quarter GDP, now at +0.4%, compared to the previous estimate of +0.6%. This release went somewhat unnoticed. As for the PCE inflation rate, it came in at 0.3%, exactly where it should be. As a reminder, this is the Fed's preferred measure for assessing price dynamics.

Right now the EUR/USD is trading at $1.1728.

KEY TECHNICAL ELEMENTS
We are immediately suspending our short positions on the spot market, which has just broken above the upper boundary of a wedge pattern. The next major test is the status of $1.1610, a support level that needs to be confirmed.

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

We will maintain this neutral opinion as long as the EUR/USD is positioned between the support at $1.1608 and the resistance at $1.1765.