EUR/USD stabilises but it is all about duration of energy shock now
EUR/USD stabilises but it is all about duration of energy shock now
The FX market saw a slight shift in sentiment this morning. Following the sharp moves driven by surging energy prices, positions have partially unwound as investors scaled back long-dollar and short-equity trades. A brief risk-on tone emerged after a New York Times report indicated that Iran had indirectly approached the CIA regarding potential terms to end the conflict, alongside comments from President Donald Trump outlining plans to protect Middle Eastern shipping and provide risk insurance to safeguard global energy flows. While these developments appear reassuring, the conflict shows no meaningful signs of de-escalation. As a result, risks for EUR/USD remain skewed to the downside.
EUR/USD hurt by energy shock as oil remains elevated
Up until today, the EUR USD exchange rate and FX price action overall was almost entirely about how high energy prices favour exporters and punish importers. That left the euro exposed, especially as volatility triggered a wave of deleveraging in other assets classes too. Still, unless we see a meaningful improvement in the energy narrative – either through lower oil prices or concrete steps to reopen Hormuz – it’s hard to make a compelling case for rebuilding structural short dollar positions. For around a fifth of global oil and gas flows through the Strait of Hormuz, and traffic has all but stalled following Iran’s threats against vessels. Markets, understandably, want more than rhetoric before dialling down the risk premium in energy.
Key US data in sight: ADP and ISM
The inflationary implications of higher crude oil prices have already prompted a hawkish repricing at the short end of the US yield curve. Sticky price pressures could limit the Fed’s room to cut, especially if we also see further improvement in US data. Markets currently price around 45 basis points of easing this year. That could be pared back further if this week’s employment indicators top forecasts. Today’s focus is on ADP employment report, where a print of around +50k is expected. Anything higher would reinforce the idea that downside risks to the labour market have diminished. Attention will then turn to the ISM services survey, particularly the prices paid component later on today. A high reading there would bolster the argument that inflation remains uncomfortably firm.
Will EUR/USD drop below 1.1500 handle?
Asset managers had previously built sizeable long positions in EUR/USD, leaving the pair exposed to further downside after the recent volatility spike. The outlook now hinges on the duration of the energy shock. If elevated energy prices persist and Hormuz remains effectively closed, a move toward the low $1.10s is possible. Conversely, if shipping lanes begin to reopen in the coming week, the energy-driven stress may ease, making 1.1500 a potential floor for the current range. For now, with no fresh negative headlines, conditions appear somewhat calmer, which may allow EUR/USD to stabilise. Still, the technical backdrop remains bearish despite the rebound.
On the four-hour chart, price printed a doji candle right around the January low at 1.1578. That does carry a mildly bullish tone, as it hints at a potential false breakdown scenario.
However, stepping back, the broader structure remains intact: we’re still seeing a pattern of lower highs and lower lows. Key resistance levels have not been taken out. In particular, the 1.1670 area is now the most important resistance to watch. As long as that continues to cap the upside, the risks remain tilted to the downside from a technical perspective.
If the EUR/USD manages to break above 1.1670, that would be an encouraging short-term signal. A move through that level could open the door towards 1.1700 initially, and then 1.1750, where the descending resistance trend line also comes into play. That’s where sellers may look to reassert control.
But given the directional bias from the daily time frame, the underlying trend is clearly still bearish. So, let’s concentrate more on the downside levels. Here, initial support is now seen around 1.1625, marking the highs of the prior 4H candles. Below that you have that January low at 1.1578. A decisive break below that would likely expose the 1.1500 handle and reinforce the broader bearish trend.
Trader | Analyst | TradingCandles.com
e: Fawad.Razaqzada@TradingCandles.com
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