EUR/USD: A rate environment that is unfavourable to the euro

Weighed down by a renewed rise in crude oil prices, the EUR/USD resumed its downward trend today, following a brief period of consolidation - driven by faint hopes over the weekend regarding a possible reopening of the Strait of Hormuz.

This easing of tension stemmed from a proposal Iran submitted to the United States to reopen the Strait of Hormuz, subject to certain conditions. Iranian diplomat Abbas Araghchi, currently in New York for the UN General Assembly, told several foreign media outlets that on Tuesday he had communicated Iran's conditions for reopening this strategic waterway to US envoy Steve Witkoff. "If certain conditions are met, the Strait will be opened within seven days and talks will begin," Araghchi stated.

However, Iran announced on Sunday that it was sticking to its conditions for reopening the strategic Strait of Hormuz, despite US President Donald Trump rejecting a plan to that effect.

Against this backdrop, rising interest rates on both sides of the Atlantic have become a persistent market theme. "The summer and early autumn have been marked by a sharp rise in global interest rates, reflecting several factors: upward revisions to growth expectations amidst persistently high inflation; deteriorating fiscal positions, with government borrowing capacity increasingly strained by the substantial bond market financing needs of 'hyperscalers'; rising energy prices amid ongoing uncertainty in the Middle East; and concerns regarding the Federal Reserve's credibility following contradictory messages from Kevin Warsh over the summer," note strategists at Indosuez Wealth Management. Regarding Europe, inflationary risks must be viewed in the context of the Eurozone's heavy reliance on hydrocarbon supplies. Moreover, economists at the Japanese bank Nomura highlight that "inflationary risks are highest in France and Spain due to the US ban on diesel exports."

On the statistical front, the week is off to a quiet start; the Conference Board Consumer Confidence Index is due for release tomorrow at 16:00 (EU time). The statistical highlight of the week will be Friday's Eurozone inflation data. This is a figure to watch closely, according to Christopher Dembik, Senior Investment Adviser at Pictet Asset Management: "It is a crucial data point that will influence the ECB's upcoming decisions and, consequently, the trajectory of Euribor, which serves as the benchmark for many variable-rate loans. The stakes are significant: in France, less than a quarter of new corporate cash loans are fixed-rate. Currently, the 3-month Euribor stands at around 2.61%. However, the market anticipates a sharp rise, with the implied three-month rate nine months out projected to be close to 3.9%."

Right now, the EUR/USD is trading at $1.1373.

KEY TECHNICAL INDICATORS
Following a period of sideways movement, the downward volatility observed and measured on Monday, September 14, indicated a breakout direction that allows us to resume short positions on this major currency pair. The increase in volatility on 15 September - coinciding with a break below the 50-day moving average (shown in orange) - further supports this scenario.

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

Our entry point is $1.1378. The target price for our bearish scenario is $1.1013. To protect your capital, we recommend placing a stop-loss order at $1.1471.

The expected return for this forex strategy is 365 pips, with a risk of 93 pips.