Risk Increases as U.S. Joins Middle East Conflict
EUR/USD Targets Support. Bearish Divergence Signals Uptrend Exhaustion.
Over the weekend, American jets struck three of Iran’s nuclear facilities, a move which comes after days of uncertainty regarding President Trump’s willingness to engage in the conflict. It is clear now that the U.S. has joined the conflict but it remains to be seen how the crisis will develop.
In a televised speech, President Trump announced that Iran’s “key nuclear enrichment facilities have been completely and totally obliterated” and warned that future attacks may follow. He also called Iran “the world’s No. 1 state sponsor of terror”.
Since the start of the Middle East conflict, oil has been the most affected asset, surging on increased demand. Depending on how the crisis unfolds, we may see even wilder swings.
The current trading environment is thorny, with risks coming from tariffs and the Middle East conflict. Meanwhile, the Fed kept the rate unchanged as it was widely expected but warned that the tariffs may affect inflation going forward, possibly slowing the pace of the next rate cuts.
Economic Calendar Highlights
The week opens with a bunch of PMI releases, starting with the German Manufacturing and Services PMIs scheduled for Monday at 7:30 am GMT. Next will be the same PMIs for the UK economy at 8:30 am GMT and the U.S. PMIs at 1:45 pm GMT. These are not market movers and will probably be overshadowed by any news regarding the Middle East crisis.
Tuesday at 2:00 pm GMT, Fed Chair Powell will testify before the House Financial Services Committee on the Semiannual Monetary Policy Report. A second testimony on the same topic will happen on Wednesday at 2:00 pm GMT but this time it will be before the Senate Committee on Banking, Housing, and Urban Affairs.
Thursday’s main event will be the release of the U.S. Final GDP numbers, scheduled at 12:30 pm GMT. However, the most important event of the week is scheduled for Friday at 12:30 pm GMT: the U.S. Core PCE Price Index. This is the Fed’s preferred inflation gauge but it is overshadowed by the CPI that is released about 10 days earlier. The expected change is 0.1%, the same as the previous month. A different number can strongly affect the US Dollar.
Technical Outlook – EUR/USD
The week opened with a small gap but it was already closed, so it will not play an important role going forward.
The Euro bulls look exhausted and the uptrend is wavering, which means that we are likely to see a deeper correction. The RSI is not overbought but bearish divergence is already present: although we have a higher high on the chart, the RSI printed a lower high. This supports the view of a bearish move, possibly towards the lower Bollinger Band.
A daily close below 1.1500 and below the bullish trend line will open the door for a move into 1.1200 support. The dollar will probably be boosted by safe-haven demand but it can also be affected by any new military moves made by the United States.
