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Risk aversion sentiment is heating up, does the euro's pressure pullback indicate a trend reversal?
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Decision Analysis]: Risk aversion sentiment is heating up, does the euro's pressure pullback indicate a trend reversal?" Hope it will be helpful to you! The original content is as follows:
On Monday (June 23), due to the renewed heating of the situation in the Middle East, the euro/dollar failed to effectively stand above the 1.1500 integer mark, and the European trading period was around 1.147. Although the situation in the United States and Iran has not escalated further, market risk sentiment remains tense, and traders continue to wait and see whether Iran will retaliate against the US air strikes. In addition, the latest HCOBPMI in the euro zone shows that the service industry maintains stability while the manufacturing industry is still shrinking, putting pressure on the overall exchange rate trend.
Brand analysis:
The US-Iran conflict has caused a heated demand for risk aversion. According to Reuters, U.S. President Trump said the strike against Iran’s three key nuclear facilities was “decisive and limited”, but after emphasizing that it would not further expand its military operations, he also hinted that it might consider “changing the Iranian regime”, which left the market at a loss. At the same time, although Iran did not directly attack US targets, it had closed the Strait of Hormuz and launched missiles on Israel, so crude oil prices soared to a five-month high. Analysts believe that although this series of actions did not trigger market panic, traders' risk appetite decreased significantly, and the US dollar index stabilized and rebounded, suppressing the performance of the euro.
In terms of economic data, the overall performance of the initial HCOBPMI in June was flat, with the service industry recording 50.2, the same as last month, and the manufacturing industry maintained at 49.4, and was still in a contraction area, both lower than expected. The US side, this week's focus is on the initial S&P manufacturing and services PMI value, and Powell's semi-annual monetary policy hearing in Congress. If the data continues to be weak, it will increase expectations of a rate cut in September, and the US dollar faces the possibility of further weakness.
Technical aspects:
Euro/USD is still in the upward channel built since March, but it encountered significant resistance at the 1.1630 line and then entered a sideways fluctuation.
From the Bollinger band pattern, the Bollinger middle rail (1.1412) currently becomes the key support, while the upper rail (1.1597) and lower rail (1.1228) converge overall, indicating that the exchange rate has entered the direction selection stage. Analysts believe that if the short term cannot stand firm at 1.15 and break back to 1.1550, the support belts in the 1.14 and 1.1380 area may be further tested.
The MACD indicator shows signs of top divergence, the DIFF line and the DEA line form a dead cross, and the histogram kinetic energy weakens; the RSI runs around 55, and there is no overbought signal, but the upward movement power is significantly slowed down.
Overall, analysis believes that the exchange rate is in a consolidation-short structure in the short term, and the future market is concerned about the effectiveness of the support range of 1.14-1.1380. If it breaks down by 1.1380, the trend may turn into bear-dominated; on the contrary, if it returns to 1.1550 and breaks up by 1.1630, a new round of upward trend can be established.
Prevention of market sentiment:
Although geopolitical shocks have not caused severe fluctuations, analysts believe that risk aversion has already appeared in the session, especially in the context of unclear situation in the Middle East, the market expressed concern about the inflation impact of the soaring crude oil. As the representative currency of the net oil import region, the euro is dragged down by high crude oil. At the same time, market expectations for the Fed's interest rate cut in July have been loosened due to Waller's remarks, but it still needs further guidance at Powell's hearing this week.
Future Outlook:
Bules Perspective: Analysts believe that if the market's response to geopolitical conflict is further blunted, and the Federal Reserve releases more dovish signals, the euro is expected to re-launch the offensive to challenge the resistance of 1.1550 and 1.1630, and may restart the upward channel trend since March after breaking through, with the target looking to the 1.1720 line.
Short perspective: Analysts believe that if the situation in Iran escalates or the Federal Reserve maintains a wait-and-see attitude, the US dollar will benefit from the attractiveness of safe-havenness, and the exchange rate may fall below the important support area of 1.1380. Once it is lost, this position may transform from support to resistance, and the subsequent downward targets will point to the 1.1240 and 1.11 support levels, and the short-term trend will turn into a downward channel structure.
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