EUR/USD: The euro remains under pressure

The Fed's decidedly more hawkish tone last week - combined with a drop in crude oil prices driven by hopes that commercial shipping traffic in the Strait of Hormuz would normalise - bolstered the dollar during the latter part of the week. Consequently, a pullback (a technical rejection) at the 20-day moving average (shown in dark blue) triggered a sharp downward move in the benchmark currency pair; during the session on 19 June, it even touched levels not seen since 15 March.

As widely expected, the first monetary policy meeting led by K. Warsh resulted in no change to dollar interest rates; however, the prospect of a policy pivot is receding. This raises the possibility - should Middle East tensions persist - of just a single federal rate hike before year-end. This was the week's key monetary event, accompanied by a corollary effect: a flattening of the yield curve, specifically a narrowing of the spread between 2-year and 10-year Treasury yields.

"By appointing a maverick to head the Fed, Trump is turning the page on the Powell era. Yet he is also choosing a figure with strong convictions who is equally willing to upend established norms. In an environment where expectations for rate hikes are mounting - even as the White House would prefer monetary easing - the stage is set for a potential clash," says Alexis Bienvenu, Fund Manager at La Financiere de l'Echiquier.

"During Trump's first term, the honeymoon period with the Fed barely lasted 5 months. With a decidedly more uncompromising Fed Chair at the helm, how long will the grace period last this time?" On the geopolitical front, Iran and the US have been attempting since Sunday - with mediation from Pakistan and Qatar - to reach an agreement to halt clashes in Lebanon and secure the Strait of Hormuz. Meeting at a luxury hotel in Burgenstock, in the Swiss Alps, the Iranian and American delegations have made "encouraging progress," according to a joint statement by the Pakistani and Qatari governments. They have "agreed on a roadmap aimed at reaching a definitive agreement within 60 days, thereby laying the groundwork for the immediate start of new technical discussions" for the remainder of the week.

This progress regarding the security of the Strait of Hormuz has allowed the easing of crude oil prices to continue, with WTI (the Texas benchmark) falling back below $77.

Right now, the EUR/USD is trading at $1.1400.

KEY TECHNICAL FACTORS
The pullback (technical rejection) we identified in previous analyses - occurring at a zone where resistance levels converged (a horizontal level at $1.1610 and the 20-day moving average) - was followed by a surge of intense selling pressure. The target of $1.1203 remains in place.

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

Our entry point is $1.1457. The price target for our bearish scenario is $1.1203. To protect invested capital, we recommend placing a stop-loss order at $1.1546.

The expected return for this forex strategy is 254 pips, with a potential loss of 89 pips.