EUR/USD: Advantage for the dollar

The EUR/USD continued to decline amid a diplomatic impasse between Washington and Tehran, a stalemate fueling the now chronically high price of crude oil, the transmission of which to the entire economy through widespread price increases looms large.

Yesterday, the 30-year yield on US Treasury bonds reached its highest level since 2007 and the financial crisis, driven by inflationary fears linked to the conflict in the Middle East. "In Europe [as well], bond market tensions are beginning to become extremely worrying, and the 10-year German Bund is now approaching 3.2%, a level not seen since 2011," according to analyst John Plassard of City Gestion.

The pressure on bond yields is closely linked to nervous anticipation of the reopening of the Strait of Hormuz to free commercial navigation.

"The ceasefire lasted longer than the kinetic phase of the war. This suggests that neither side has a real interest in resuming hostilities. Yet, each side is betting that the other will be the first to give in under the economic pressure of the blockade. Both sides are seeking to obtain more significant concessions at the negotiating table," says Raphael Olszyna-Marzys, international economist at Bank J. Safra Sarasin.

"Any agreement, however, should focus primarily on the conditions for reopening the Strait. It could address the Iranian nuclear program, but only in a limited way, with the most sensitive issues likely to be deferred to later discussions."

Next up toay are the traditional Fed Minutes at 20:00 (Paris time), a factual and chronological account of the debates at the last FOMC meeting. Currency traders also just learned of the final consumer price data for April in the monetary union. No significant deviation from initial estimates, with core inflation at 2.1% year-on-year.

Right now, the EUR/USD is trading at $1.1621.

KEY TECHNICAL ELEMENTS
From a technical perspective, the EUR/USD is now encountering a pivotal zone. After recovering much of its decline related to the acute phase of the conflict, it is trading near the upper limit of its range. This configuration 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 ($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 sent a negative technical signal, which resulted in a downward acceleration in the form of a break below the 200-day moving average (brown line). A temporary rebalancing of market forces is expected before a bearish resumption.

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

We will maintain this neutral stance as long as the EUR/USD exchange rate remains between the support level at $1.1460 and the resistance level at $1.1765.