EUR/USD: oil is flowing, the euro is relieved

The euro, a key barometer of risk appetite in financial markets, rose on Monday following the announcement of an agreement, or at least a peace protocol, between Washington and Tehran.

After 107 days of war, the US and Iran reached an agreement today to immediately end the conflict in the Middle East. The reopening of the Strait of Hormuz was announced shortly thereafter, causing a drop in oil prices.

The Prime Minister of Pakistan, which has positioned itself as a mediator between the United States and Iran during the peace negotiations between the two countries, confirmed that an agreement will be signed this Friday in Switzerland. "Both sides have declared an immediate and permanent cessation of military operations on all fronts, including in Lebanon," Shehbaz Sharif emphasized. "With the agreement now in place, the mediators will facilitate a series of meetings this week," he added.

The price of WTI crude oil has fallen sharply to around $79 a barrel, while still holding up a 40% gain since January, demonstrating that the risk premium on the barrel will only gradually diminish. This should significantly reduce the pressure on the dollar in the immediate future. The agreement is expected to be signed on Friday in Switzerland. This signing should allow the reopening of the Strait of Hormuz on the same date, through which the equivalent of 20% of global oil and liquefied natural gas consumption passes.

It is in this context that currency traders are digesting the latest ECB Governing Council meeting and preparing for the Fed's Federal Open Market Committee meeting, which concludes on Wednesday.

"Caught in its dogmatism, the ECB is therefore embarking on a phase of interest rate hikes, even though from an economic point of view, there is no urgency other than to wait," explains Enguerrand Artaz, Strategist, La Financiere de l'Echiquier (LFDE).

"It's almost the opposite inconsistency that's taking hold on the other side of the Atlantic. While Donald Trump continues to call for rate cuts and some observers still expect a reduction in key interest rates, the arguments in favor of such monetary policy action are visibly weakening. On the growth front, the momentum of recent months has been decidedly positive. Growth remains robust, investment is still very dynamic thanks to AI, and the job market is picking up again, with more and more sub-sectors involved. This last point is particularly important because, beyond being a good omen for consumption, it directly relates to one of the two mandates of the US Federal Reserve (Fed)."

On the macroeconomic agenda today, watch the Empire State manufacturing index at 14:30 (EU time) and the monthly federal manufacturing report at 15:15.

Right now, the EUR/USD is trading at $1.1610.

KEY TECHNICAL ELEMENTS
The Euro has just completed its pullback (rejection) from the resistance zone at $1.1610, a level that corresponds to the 20-day moving average (dark blue line).

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 outlook as long as the EUR/USD remains between the support level at $1.1460 and the resistance level at $1.1608.