EUR/USD holds losses near 1.1550 amid fading hopes of a US-Iran peace deal
- The Euro hovers just above 1.1550, weighed down by a risk-averse sentiment.
- Hawkish comments by ECB speakers and soft German data are casting doubt about the Eurozone's economic outlook.
- EUR/USD recovery from mid-March lows near 1.1400 is showing signs of exhaustion.
The Euro (EUR) remains practically flat against the US Dollar (USD) at the time of writing on Thursday, consolidating losses from the previous two days. Iran’s rejection of the US peace plan proposal has shattered the mild hopes of a peace deal in the Middle East, hurting investors' appetite for risk and providing additional support for the safe-haven USD.
Iran has rejected the 15-point plan presented by the US to end the war in the Middle East and denied any negotiations while the country remains under attack. The US has threatened to “hit harder”, while US and Israeli planes have continued attacking. Tehran has responded by launching missiles and drones targeting central and northern Israel, and the Strait of Hormuz remains closed for the fourth week, strangling the global economy and hammering market sentiment.
In the monetary policy domain, European Central Bank (ECB) committee member Joachim Nagel affirmed that a rate hike will be an option at April’s meeting, in line with President Christine Lagarde’s comments on Wednesday, who stated that the central bank is ready for monetary policy adjustments if inflation proves stronger. On the macroeconomic front, the German GfK Consumer Confidence Survey projected a sharp decline, to -28 in April, its worst reading in over two years, from -24.8 in March.
Technical Analysis: Euro recovery might have hit a top
EUR/USD trades at 1.1560 as of writing on Thursday. The pair remains within a bullish channel from mid-March lows, but the double top around 1.1635 and the evening star candle pattern in the daily chart suggest that bulls might have lost faith.
Technical indicators are also pointing lower on the 4-hour chart. The Moving Average Convergence Divergence (MACD) histogram has turned more negative, with the MACD line trading below the signal, suggesting bearish momentum. The Relative Strength Index (RSI) has retreated toward the mid-40s, reinforcing a loss of upside conviction and pointing to risk of further downside while below the recent 1.1610 zone.
Initial resistance emerges at the mentioned 1.1635 area (March 23, 25 highs) ahead of the March 10 high near 1.1670. On the downside, the 1.1550 area is holding bulls on Thursday, ahead of the channel bottom, now around 1.1535, and the March 23 low, at 1.1484.
(The technical analysis of this story was written with the help of an AI tool.)
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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