Markets on Edge as Peace Talks Yield No Progress
EUR/USD tests 1.1700 after strong bullish run.
Hopes that the war between the U.S. – Israel, and Iran would end soon have dwindled during the weekend as peace talks yielded no results. U.S. and Iranian representatives have met in Islamabad for negotiations, with the Strait of Hormuz and the Iranian nuclear program as the main points of discussion.
According to U.S. Vice President JD Vance, the American representatives were “quite accommodating and flexible“. During a brief press conference, he said: “The president told us, ‘You need to come here in good faith and make your best effort to get a deal.’ We did that, and unfortunately, we weren’t able to make any headway”.
At the time of writing, it’s unclear whether a new round of talks will take place between the U.S. and Iran, but Pakistan urged the two sides to uphold the ceasefire.
U.S. inflation came out below expectations, with the YoY CPI showing 3.3%, lower than the forecast 3.4% but above the previous 2.4%. The year-over-year (YoY) measure compares prices in the release month with those in the same month a year earlier. The month-over-month CPI showed a 0.9% change, lower than the forecast 1.00% but higher than the previous 0.3%. This acceleration in inflation is largely driven by rising energy prices, a consequence of the closure of the Strait of Hormuz.
Economic Calendar Highlights
We’re headed into a very slow economic week, with the Producer Price Index (PPI) as the only potential market-mover. The PPI has inflationary implications as it shows changes in the prices that producers charge for their goods and services. If the producer price rises, the difference will eventually be passed on to the consumer.
The PPI and Core versions of the PPI are scheduled for release on Tuesday at 12:30 pm GMT. The Core version, which excludes food and energy from the calculation, is expected to remain unchanged at 0.5%, while the headline PPI is expected to increase 1.2% from the previous 0.7%.
Technical Outlook – EUR/USD
The euro bulls have been in control for the entire last week, driving the pair from 1.1520 to a weekly close at 1.1722. Although they are bullish, the last couple of daily candles show signs of slowing momentum, with smaller bodies and longer shadows.
There is no clear sign of bullish divergence, but the current position of the RSI is higher than it was at previous peaks. If the RSI is rising faster than previously, this could mean that the rally is not sustainable long-term, or at least that a pullback will soon happen.
The main level to watch is 1.1700, which was broken last week, but the price stopped very close to it. It will be important to see how the market reacts after the break and, perhaps more importantly, how the failed negotiations will impact sentiment. With a light economic calendar, the Middle East conflict is likely to dominate headlines.
