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The EUR/USD currency pair decreased by only 15 points over the past week, with an average volatility of 56 pips over the last five days. Thus, we can draw several conclusions. First, the market is not eager to rush into trading decisions until there is full clarity regarding the war in the Middle East. Secondly, the market is leaning toward the view that Iran and the U.S. will not reach a peace agreement in the near future. Therefore, the dollar feels relatively stable overall, but the balance can tip in the opposite direction at any moment.
Over the weekend, the situation in the Middle East did not change. On Sunday, Donald Trump announced that a peace agreement with Iran is nearly agreed upon, with only a few details left to finalize. The American president stated on his Truth Social account that negotiations involved countries such as Saudi Arabia, the UAE, Qatar, Pakistan, Egypt, Turkey, and Bahrain. According to Trump, the Strait of Hormuz may be opened soon, as it was a key point of the upcoming agreement.
Some traders may have breathed a sigh of relief after this news, but we want to note that this is not a full peace agreement but rather a so-called memorandum of understanding. This document represents a commitment by both parties to continue further negotiations. Some experts reported that it would be in effect for 30 days, during which Washington and Tehran must sign a final ceasefire. Thus, there is still no peace between the U.S. and Iran, the Strait of Hormuz remains closed, and the memorandum of understanding has not yet been signed. Accordingly, the market may start selling off the U.S. dollar in the new week, but these movements are unlikely to be strong or long-lasting.
It is important to remember that the issue of Iran's nuclear energy remains unresolved. How the parties can reach a consensus on this issue is still unclear. Moreover, traders have received so many messages over the past few weeks about how "the deal will be signed any moment" that they are unlikely to take Trump at his word. When the memorandum is officially signed by all parties, we can celebrate a small victory. However, restoring traffic in the Strait of Hormuz and preventing new conflicts in the Middle East can only be achieved through a full agreement, which remains far from certain. Most experts continue to insist that Iran and the U.S. are far apart on key issues.
Regarding the macroeconomic backdrop, there are no important reports scheduled in the European Union. Only in Germany will unemployment and inflation data be released on Friday. These are, of course, interesting reports, but not at the moment. It is worth noting that the market has been ignoring up to 90% of macroeconomic data over the past three months. Thus, we believe that on Monday, the euro and pound may show decent growth, but without a clear signing of the agreement, the growth of risk assets will be short-lived.
The average volatility of the EUR/USD currency pair over the last 5 trading days as of May 25 is 56 pips, which is "average". We expect the pair to trade between 1.1548 and 1.1660 on Monday. The upper channel of the linear regression has turned upwards, indicating a trend change to the upside. In fact, the upward trend for 2025 could have resumed a month ago. The CCI indicator has entered the overbought area and formed two "bearish" divergences, signaling the start of a downward correction that is still underway.
S1 – 1.1597
S2 – 1.1536
S3 – 1.1475
R1 – 1.1658
R2 – 1.1719
R3 – 1.1780
The EUR/USD pair continues its downward movement, which is presumably a correction within the broader upward trend. The global fundamental backdrop for the dollar remains extremely negative, and only geopolitical factors regularly support it. When the price is below the moving average, short positions can be considered with targets at 1.1548 and 1.1536. Above the moving average line, long positions are relevant with targets at 1.1780 and 1.1841. The market has been moving away from geopolitical factors, but over the past two weeks, the dollar has regained demand as market hopes for peace in the Middle East have weakened.
Linear regression channels help determine the current trend. If both are directed in the same way, the trend is currently strong;
The moving average line (settings 20,0, smoothed) determines the short-term trend and the direction in which trading should be conducted right now;
Murray levels are target levels for movements and corrections;
Volatility levels (red lines) indicate the probable price channel in which the pair will reside over the next 24 hours, based on current volatility metrics;
CCI indicator – its entry into the oversold area (below -250) or overbought area (above +250).
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