18.06.201900:55 Forex Analysis & Reviews: EUR/USD: weak reports from the United States and the escalation of the US-Iran conflict

The dollar index gradually loses its position. There is not a trace left of the former confidence of dollar bulls, therefore, to one degree or another, the greenback loses the points it won on Friday in almost all currency pairs. The brightest correctional dynamics is observed in the euro-dollar pair. During the European session, the pair traded in a narrow-range flat, rising from Friday's low by only 10-15 points. But at the beginning of the US session, eur/usd buyers showed determination and took the pair to the middle of the 12th figure.

The reason for the upward impulse was the publication of a very secondary indicator. This is the manufacturing index of Empire Manufacturing. This indicator is based on a survey of manufacturers in the New York Federal Reserve Bank area: values above zero reflect an increase in activity, below would be its decline. So, for the first time in two years, this figure fell to a negative area - down to -8.6 points. This turn of events was a surprise for traders, since experts predicted a fairly confident growth of the index to 11 points. Since March, it gradually increased and in May reached its annual high of 17.8 points. Therefore, such a sharp decline had a strong pressure on the dollar, which weakened its position throughout the market.

Ironically, the Friday strengthening of the dollar was largely due to the growth of industrial production in the United States. The figure rose unexpectedly by 0.4% on a monthly basis, after a strong decline in the previous reporting period. The index exceeded the forecast values (+0.2%) and reached a seven-month high after the sharpest decline since February 2017. Against the background of such results, the market rather painfully perceived a sharp decline in the manufacturing index of the Empire Manufacturing. Additional pressure on the greenback has also been provided by the confidence indicator of developers, which is studied by the National Association of Housing Builders (NAHB). The indicator is based on a survey of almost a thousand of American developers in relation to current and future sales of private homes. After a 5-month growth, the indicator declined contrary to the positive forecasts of most analysts.

However, the trend change in the eur/usd pair is out of the question - at least until the announcement of the results of the June Fed meeting (to be held on Wednesday). US data only strengthened the corrective movement of the pair, but no more. Today, minor macroeconomic data were published, which influenced the price dynamics only due to a half-empty economic calendar. In general, the overall situation of a fundamental nature remains on the side of the US currency. First of all, we are talking about anti-risk sentiment among traders. Furthermore, if the US-Chinese trade conflict temporarily faded into the background (before the G-20 summit), then the growing tension between the US and Iran is causing unease among investors more and more often. After a recent incident in the Gulf of Oman, during which tankers were attacked, the conflict between the US and Iran has intensified significantly.

Some political analysts do not rule out that a "cold" conflict may lead to a real war. Trump blames Iran for attacks on the ships, but added that he did not want to start a war between countries. Nevertheless, he sent a navy to the region, thereby exerting some pressure on the Iranians. Thus, the representative of Iran today called on Washington to withdraw its forces, assuring them that Tehran controls the situation in the Gulf of Oman. The Americans have not yet responded to this statement, so the situation is still uncertain. If relations between the two continue to develop in a similar vein, then military escalation may occur at the end of Trump's current presidential term — at least some analysts are saying over this scenario.

A potential military conflict between the United States and Iran has background pressure on the eur/usd pair, since the dollar is in high demand as a defensive asset. Nevertheless, the "reliability" of this fundamental factor can be questioned. The political conflict between Tehran and Washington can really get its development, but judging by the dynamics of defensive tools, the market still believes in the power of diplomacy. By the way, in 2013, Iran already threatened to block the Strait of Hormuz, but then it did not realize its intentions. In addition, the escalation of the conflict in May also did not receive its continuation: the parties expressed their positions, but took no further steps.

Thus, the euro-dollar pair is traded under the influence of conflicting fundamental factors. On the one hand, the dollar is under pressure due to a sharp decline in secondary macroeconomic indicators, on the other hand, the overall increase in anti-risk sentiment supports the greenback. As a result, eur/usd bulls allowed themselves the "luxury" of a corrective pullback, but this price trend is limited to 1.1260 - this is the middle line of the Bollinger Bands indicator on the four-hour chart. The support level is still the mark 1.1210 - the lower boundary of the Kumo cloud on the D1 timeframe.