EUR/USD: A worrisome services barometer in the EU

The EUR/USD broke below $1.16 on Thursday, amid a lack of diplomatic progress between Washington and Tehran and pressure from a very disappointing Eurozone services sector activity index.

Donald Trump stated that the situation with Tehran was "on the edge," between an agreement to end the war in the Middle East and a resumption of strikes against Iran.

"It's on the edge, believe me. If we don't get the right answers, things can move very quickly. We are all ready to act. We have to get the right answers. They will have to be completely, 100%, satisfactory," Trump warned.

Iran has reportedly hardened its stance on enriched uranium, a move that is likely to jeopardize hopes for a resolution to the conflict between Tehran and Washington. Iran's Supreme Leader, Mojtaba Khamenei, believes the Islamic Republic's stockpile of highly enriched uranium should remain in Iran, according to Reuters, citing two senior Iranian sources.

Yesterday, traders learned at 11:00 AM of the final consumer price index data for April in the monetary union. There were no significant discrepancies compared to the initial estimates, with core inflation at 2.1% year-on-year.

Later in the morning, the first estimates of the Eurozone Services PMI caused the single currency to fall. The score came in well below the 50-point mark, at 46.3, thus indicating a sharp contraction in economic activity.

"The services sector is bearing the brunt of the war's impact on the cost of living, with rising energy prices in particular causing a sharp drop in demand," comments Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, which also analyses composite data (including the industrial score): "The severe supply disruptions caused by the war are intensifying, with the survey reporting increasingly significant delivery delays. These supply chain strains not only threaten economic growth in the coming months but also risk exacerbating inflationary pressures."

"Given the rise in price indices recorded in May, we can already anticipate an inflation rate close to 4% in the coming months. Combined with increasingly numerous signs of a return to contraction in the eurozone, this trend places the ECB in an increasingly precarious position."

The sole component of the German industrial sector has symbolically fallen back below 50 points, to 49.8. It's worth noting that the 50-point threshold, by definition, separates expansion from contraction in economic activity.

Brent crude is rising again, above $107 a barrel as we write this.

Right now, the EUR/USD is trading at $1.1595.

KEY TECHNICAL ELEMENTS
From a technical perspective, the euro/dollar pair is now facing 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 movement. 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 (in brown).

A temporary rebalancing of forces is underway, before a bearish restart.

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

Our entry point is $1.1604. The price target for our bearish scenario is $1.1203. To protect your invested capital, we advise you to place a stop-loss order at $1.1701.

The expected profit for this strategy is 401 pips, and the potential loss is 97 pips.