On Tuesday, the euro-dollar pair shows bearish sentiment; any optimism that prevailed last week has completely vanished. Sellers have taken the initiative, although they have yet to leave the 17th figure area. This serves as a sort of "home port" for EUR/USD traders: over the past five weeks, the pair has closed Friday trading within this price range, reflecting indecision among both buyers and sellers. Therefore, Tuesday's price dynamics should also be viewed through the lens of the established "sideways phase." As long as sellers do not breach the support level at 1.1690 (the middle line of the Bollinger Bands indicator on the W1 timeframe) and do not consolidate below it, one cannot speak of a developing, sustainable downward trend. Consequently, the current decline is merely a correction within the established price range.
However, in the current circumstances, it is not the EUR/USD decline that is surprising, but rather its relatively limited nature, given that many fundamental factors currently favor the greenback.
I would like to remind you that last week, the market was driven by optimism about the prospects of resolving the Middle Eastern conflict. Influential media outlets published reassuring insider information, suggesting that the US and Iran were close to signing a memorandum that would secure a ceasefire, partially lift sanctions pressure on Tehran, and serve as a basis for a broader negotiation process. Additionally, there were active rumors in the press that the parties might transition to an in-person format for direct negotiations as early as this week, which was perceived as a signal of diplomatic progress.
However, this week, market optimism has dissipated as the US President rejected Iran's latest counter-proposal, calling it "absolutely unacceptable." Commenting on the negotiations, Donald Trump stated that the ceasefire regime (in effect since April 8) is "on life support." In other words, the peace process is effectively on the verge of collapse.
Adding fuel to the fire, Axios and CNN insiders reported that the President is considering renewing active military operations. This not only refers to escorting vessels through the Strait of Hormuz but also to potential airstrikes on Iranian facilities.
Tehran, for its part, threatened to increase uranium enrichment to 90%, effectively reaching weapons-grade levels, in response to any new military strikes from the US.
Against this backdrop, Israeli Prime Minister Benjamin Netanyahu stated that military confrontation with Iran "will not end as long as the country possesses highly enriched uranium stocks."
In other words, geopolitical tensions have once again increased, while negotiations between the US and Iran are essentially at a standstill.
Yet, despite such a grim fundamental backdrop, the EUR/USD pair remains within the 17th figure and has not even tested the aforementioned support level at 1.1690.
In my opinion, traders are maintaining a cautiously optimistic outlook ahead of Trump's upcoming visit to China, set to begin on May 13. The market still hopes that this visit will at least partially stabilize the global agenda, primarily through a possible extension of the US-China trade truce and by leveraging Beijing's influence over Tehran to de-escalate the Middle Eastern crisis.
This optimism remains very fragile. If the negotiations in China do not yield tangible results, the market will start to price in the risks of a renewed trade war. Concurrently, the US rhetoric towards Iran may once again become significantly more aggressive. In such a scenario, the dollar would strengthen across the market, and the EUR/USD pair would consolidate below the 1.1690 support level.
However, an alternative scenario is also possible, in which Washington and Beijing demonstrate readiness for further dialogue, and tensions around Iran gradually decrease (including due to China's mediating efforts). In this case, the EUR/USD pair could approach the 18th figure again, potentially testing the 1.1810 resistance level (the upper line of the Bollinger Bands indicator on the D1 timeframe).
The intrigue remains, and the stakes are very high. Therefore, traders are reluctant to open large positions in favor of or against the dollar.
Market participants essentially ignored the US CPI growth report published on Tuesday, despite nearly all components showing positive results (the overall consumer price index accelerated to 3.8% year-on-year, while the core index rose to 2.8% year-on-year). This indicates that the geopolitical agenda is currently "in a league of its own," overshadowing macroeconomic factors. In such a high level of uncertainty, the most prudent strategy is to maintain a wait-and-see position, as the balance of risks could shift at any moment in favor of or against the dollar.
