EUR/USD: A systematic decrease in high points

The euro, a barometer of risk appetite, depreciated against the dollar amid growing weariness among traders regarding the Middle East conflict. On this geopolitical front, on the 95th day of the conflict, tensions are running high in the Gulf region, where Iran has resumed its strikes, hoping to disable US military bases. In response, the United States asserted that it had "conducted strikes in self-defense."

Tuesday, the US military claimed to have repelled several Iranian missile and drone attacks against its bases and allies in the region, and to have retaliated by bombing an Iranian island on the ground. "Iran has launched several ballistic missiles toward countries in the region, but all have missed their targets," the U.S. military command for the Middle East wrote in a statement on X.

As a direct and indirect consequence of the surge in crude oil prices in early March, followed by the nervous price fluctuations that have plateaued, inflation has started to rise again in the Eurozone.

"Under these circumstances, given the lack of progress so far, one cannot help but be concerned about the final outcome. Nevertheless, despite the enormous uncertainties surrounding the progress of these negotiations, we are counting on an agreement, even a minimal one, that would allow for the opening of the Strait of Hormuz. This would translate into a gradual normalization of maritime transport, particularly of oil and gas," comment the strategists at LBPAM.

"In this scenario, the energy shock should gradually dissipate by the end of the year. At the same time, the negative effects already underway are expected to continue weighing on growth."

Published earlier this week, the first inflation estimates for the Eurozone in May slightly exceeded expectations, reaching 2.4% year-on-year, excluding volatile items (food, energy, alcohol, and tobacco).

In the United States, the situation is different but nonetheless complex, as the country is much less dependent on fossil fuel imports. The resilience of the world's largest economy is also greater.

"Donald Trump seems relatively indifferent to the political cost of his strategy, even as he reaches record levels of unpopularity in several recent polls and the midterm elections are already looming. Yet, while the US economy remains generally resilient, the first consequences of the conflict are beginning to appear in the statistics," notes Thomas Giudici, Head of Fixed Income at Auris Gestion.

"In addition to downwardly revised growth figures for the first quarter (1.6% versus the initial estimate of 2%), the inflationary shock linked to rising energy prices continues to erode household purchasing power. Personal income remained stable in April, after a 0.5% increase in March (boosted by tax refunds) and against a consensus forecast of 0.4%, forcing American households to draw more heavily on their savings to support their consumption. The household savings rate has also fallen to its lowest level since 2022."

Right now, the EUR/USD is trading at $1.1599.

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 movement. 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 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 underway, 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 1.1608 USD and the resistance level at 1.1686 USD.