USD Storming Higher Again

The rally in USD is causing waves across FX markets ahead of the weekend with heavy losses in XXX/USD pairs. EURUSD is on watch today having reversed back under the late April lows. With that support level broken the chart is starting to point towards a return to the 1.1490 level. Indeed, the rally in USD is outshining EUR despite hawkish ECB expectations as a result of the Iran war. With no noted progress made in talks between Trump and Xi this week and with US/Iran negotiations still stalled, traders sense that higher energy prices are here to stay.

Hawkish ECB Expectations

With this in mind, ECB expectations have turned more hawkish with the market now pricing in full three hikes across the year. This comes on the back of comments from ECB’s Kazaks yesterday who warned that rates would need to rise if higher energy prices continue to impact inflation expectations. Crude prices are currently sitting around $100 p/b and look unlikely to shift lower anytime soon unless we get a shock breakthrough in US/Iran negotiations.

Strait of Hormuz

The big issue is that the Strait of Hormuz remains blocked, keeping supply in a strangle hold. Trump signalled this week that the US doesn’t need the Strait to be open anymore and claims to be planning a major trade operation with China. However, it seems that traders are interpreting that as meaning that high oil prices are likely here to stay with USD set to remain higher accordingly.

Technical View

EURUSD

The failure at the latest retest of the broken bull trend line has seen price breaking sharply back below the 1.1756 level. Price is now fast approaching a test of the 1.16 support and with momentum studies bearish, risks are skewed towards a deeper push down to 1.1490 next.