EUR/USD: Geopolitics invite themselves into the ECB governor's council meeting

Currency traders are awaiting the outcome of the ECB Governing Council meeting - comprising, as a reminder, the six Executive Board members and the governors of the national central banks of the twenty-one eurozone countries. It is not that there is unbearable suspense regarding the monetary policy decision itself - rates remaining unchanged is a foregone conclusion - but rather that the focus lies elsewhere: on the language used during the press conference at 2:45 PM. The meeting is overshadowed by the fresh surge in crude oil prices and the automatic impact this would have on inflation should the Middle East situation persist - all while tensions are shifting geographically to the Red Sea...

Yemen's Houthi rebels announced a maritime blockade against Saudi Arabia this week, a threat immediately followed by attacks on two oil tankers in the Red Sea. With Tehran once again closing the Strait of Hormuz, the prospect of the Bab el-Mandeb Strait also being shut down is causing concern.

"The breakdown in negotiations and the renewed tension seen in the Middle East over the past few days pose a risk that could drive oil prices up. However, with Brent crude holding below $90 a barrel - well below 2026 forecasts - the ECB currently has no reason to revise its inflation outlook upward or to implement further monetary tightening," observes Edouard Faure, Head of Credit at Swiss Life Asset Managers France. "In reality, due to the conflict involving Iran, the ECB has moved away from forward guidance in favour of a scenario-based approach. Uncertainties surrounding the Strait of Hormuz make it very difficult to forecast energy price trends. The ECB has therefore chosen to present several scenarios based on price trajectories, each linked to different monetary policy outlooks, thereby providing greater visibility to the markets," adds Patrick Barbe, Head of European Investment Grade Fixed Income at Neuberger.

Right now, the EUR/USD is trading at $1.13729.

KEY TECHNICAL FACTORS
The pullback (technical rejection) identified in our 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 an intense release of selling pressure. The target of $1.1203 remains in place. The spot rate is currently breaking through annual lows ($1.1408).

A break below $1.1202, accompanied by significant volatility, would lock in a lower bearish target of $1.1012, prior to a sharp, swing-style bullish rebound.

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

Our entry point is $1.1408. The price target for our bearish scenario is $1.1013. To protect invested capital, we recommend placing a stop-loss order at $1.1501. The expected return for this forex strategy is 395 pips, and the risk of loss stands at 93 pips.