EUR/USD: the Euro locks in its recent advance

The euro was consolidating its recent gains following a Federal Reserve monetary policy meeting that resulted in no change to rates, and amidst a geopolitical lull that led to a drop in crude oil prices.

As a reminder, last week the Federal Reserve - now led by Kevin Warsh - concluded its FOMC meeting by pausing key interest rates, although three Board members voted for a 25-basis-point hike in the cost of borrowing dollars. The message delivered at the press conference proved unclear, as the new Fed chief broke with the "forward guidance" tradition established by his predecessors.

"Kevin Warsh rattled financial markets during his second press conference - not through a monetary policy decision, but through inaction and confusing communication. The yield on 30-year bonds surged 11 basis points on Wednesday as investors priced in a higher inflation risk premium and the possibility that the Fed might eventually have to play catch-up," comment economists at J. Safra Sarasin.

Regarding the geopolitical situation in the Middle East, the US President stated early Monday that new negotiations with Iran would begin that day; he also claimed to have held off on a new attack against the Islamic Republic, provided an agreement could be reached quickly. Iranian Foreign Ministry spokesman Esmaeil Baghaei, quoted by AFP, insisted that Tehran was not currently negotiating with the United States.

On Monday, Donald Trump warned in a post on his Truth Social platform that the naval blockade against Iran would only be lifted in the event of an "agreement" or "total capitulation." "Iranian leaders are incredibly duplicitous! They ask for a meeting - some might say 'beg' for one - talks begin and others are scheduled for the immediate future, yet they publicly and proudly claim they are not holding any discussions," he wrote.

The euro - a quintessential risk asset - benefited from this lull, driven by the transmission mechanism of crude oil prices; North Sea Brent crude stood at $86 a barrel, down from the $120 peak seen at the height of tensions. Additionally, currency traders were reassured by the confirmation of final manufacturing PMI data for July, which came in close to the 52-point mark for the Eurozone.

"While bottlenecks and energy-related inflationary pressures have eased slightly compared to June, supply chain disruptions and high energy prices persist, fueled by tensions in the Middle East. This situation threatens to curb production and weigh on demand in the coming months," notes Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

Right now, the EUR/USD is trading at $1.15106 on the foreign exchange market.

KEY TECHNICAL FACTORS
We are suspending our short positions on this major currency pair above the $1.1408 level, pending a confluence of new technical signals.

MEDIUM-TERM OUTLOOK
Based on the key technical factors mentioned, our medium-term view on the EUR/USD is neutral.

We will maintain this neutral stance as long as the EUR/USD remains between the support level at $1.1460 and the resistance level at $1.1588.