EUR/USD: US 10-year Treasury yields rise significantly

The resurgence of inflationary signals in the US, driven by energy prices, against a backdrop of diplomatic deadlock between Washington and Tehran, is fueling the downward movement of the EUR/USD this morning. The benchmark currency pair has now broken below its 200-day moving average, which is itself in a downward inflection phase.

Thomas Hempell, Head of Macro & Market Research at Generali Investments, believes "there is still a good chance of a negotiated reopening [of the Strait of Hormuz] in May, which would significantly limit the repercussions compared to 2022, following Russia's invasion of Ukraine, thanks to strong pre-crisis momentum and a less strained labor market. However, the risk of a prolonged disruption remains high, and the drag on growth and rising inflation are increasing more than proportionally with each additional week, as high energy prices could be exacerbated by actual supply shortages."

Against this backdrop, the US 10-year Treasury yield has risen sharply above 4.53%, following confirmation in this week's figures, with both consumer and producer prices significantly exceeding expectations.

Published on Wednesday, producer prices, expected to rise by 0.5%, surprised markets, increasing by 1.3% in April, after a 0.6% rise in March. This is the largest increase since March 2022, and the start of the war in Ukraine. On an annual basis, producer prices rose by 6%, while the consensus forecast was for a 5% increase. The release the previous day of US consumer price data for April cast a chill over the markets. Inflation in the US rose more than expected, by 3.8% year-on-year in April, compared to a consensus forecast of 3.6% and after 3.2% in March, according to the Consumer Price Index (CPI). This is its highest level since 2023.

On the macroeconomic agenda today, watch the Empire State Manufacturing Index at 14:30 (Paris time) and the federal industry report at 15:15 Yesterday, there were no surprises regarding US retail sales, nor were the weekly jobless claims, which were in line with expectations. Investors were thus able to focus on the geopolitical situation, still marked by a diplomatic impasse between the US and Tehran and Trump's visit.

Right now the EUR/USD is trading at $1.1646.

KEY TECHNICAL ELEMENTS
From a technical perspective, the EUR/USD is now encountering a pivotal zone. After erasing much of its decline related to the acute phase of the conflict, it is trading near the upper limit of its trading range. This setup reflects a compression of volatility and marked hesitation among market participants, who are currently unable to trigger a sustained upward move. In the absence of a clear catalyst - whether macroeconomic, monetary, or geopolitical - the pair remains contained below this major resistance level ($1.1825), in a wait-and-see phase that could lead to a more directional move once this equilibrium is broken.

The hanging man candlestick pattern of 10 May sends a negative technical signal.

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

Our entry point is at $1.1633. The price target for our bearish scenario is $1.1409. To protect your capital, we advise placing a stop-loss order at $1.1691.

The expected profit of this strategy is 224 pips and the risk of loss is 58 pips.