30.03.202604:40 Forex Analysis & Reviews: Overview of the EUR/USD Pair. Weekly Preview. Geopolitics and Inflation

The EUR/USD currency pair continued its relatively weak downward movement on Friday; however, the next drop is expected to be less significant. The key point is that the pair is slowly drifting downwards again, indicating that demand for the US dollar is rising once more. This is not surprising, as the situation in the Middle East has not improved in recent days. Despite promising statements from Donald Trump, the war continues, the Strait of Hormuz remains blocked, and oil prices continue to creep upward. Moreover, Yemen may block the Bab-al-Mandab Strait, further worsening the global situation regarding oil and gas. Thus, the renewed strength of the dollar is purely driven by geopolitical factors.

For the past two months, the market has paid virtually no attention to the macroeconomic backdrop or central bank meetings. For example, the ECB may raise its key interest rate next month, yet the euro continues to decline regardless. Macroeconomic data from across the ocean remain quite weak and disappointing, but the dollar continues to rise confidently. Therefore, next week, geopolitical issues will again take precedence for traders.

However, several important reports will be published in Europe amid the current circumstances. First and foremost, these pertain to inflation in Germany and the Eurozone for March. This will be the first inflation report for March, and it will clarify how soaring oil prices will reflect on consumer goods prices. Currently, German inflation is expected to rise to 2.6%, while the overall European figure is projected to reach 2.8%. However, actual values may be even higher. The higher inflation rises in March, the greater the likelihood that the ECB will tighten monetary policy in April.

But can the European currency benefit from this? In our view, only if the situation in the Middle East does not worsen further, and the Bab-al-Mandab Strait is not blocked following the Strait of Hormuz. In simpler terms, if geopolitical conditions continue to deteriorate and the markets receive no signals of a decrease in tensions in the Middle East, the dollar may continue to rise, regardless of other factors. Conversely, if the situation begins to improve, the dollar may start to fall despite everything. Therefore, the inflation reports serve more of an informative purpose.

Additionally, labor market data will be released in the US, but it is worth noting that the market has largely ignored this data in recent months. The February numbers were completely disappointing, yet this has not affected the market's bearish sentiment. Thus, all attention is on geopolitical factors, Trump's statements, events in the Middle East, announcements from Iranian leaders, and now possibly also Yemen. It is still too early to declare the end of the global upward trend; however, each week, the EUR/USD pair gets closer to breaking it. The dollar, however, can rely only on geopolitical factors for support. Therefore, as soon as this factor is neutralized, the strength of the US currency may cease.

The average volatility of the EUR/USD currency pair over the last 5 trading days as of March 30 is 80 pips and is considered "average." We expect the pair to trade between 1.1429 and 1.1589 on Monday. The upper linear regression channel has turned downward, indicating a change in trend. The CCI indicator has entered oversold territory and formed a "bullish" divergence, which again warns of a potential end to the downward trend. However, geopolitics continues to weigh on the pair.

Nearest Support Levels:

S1 – 1.1475

S2 – 1.1353

S3 – 1.1230

Nearest Resistance Levels:

R1 – 1.1597

R2 – 1.1719

R3 – 1.1841

Trading Recommendations:

The EUR/USD pair continues its downward movement, driven by geopolitical factors. The global fundamental backdrop for the dollar remains extremely negative, yet for over a month, the market has focused solely on geopolitics, rendering all other factors practically irrelevant. If the price is below the moving average, short positions can be considered with targets of 1.1475 and 1.1429. Long positions above the moving average are relevant, with targets at 1.1963 and 1.2085, but for such a move to occur, the geopolitical backdrop must improve slightly.

Explanations of the Illustrations:

• Linear regression channels help identify the current trend. If both are pointing in the same direction, it indicates a strong trend.
• The moving average line (settings 20,0, smoothed) indicates the short-term trend and the direction in which trading should currently proceed.
• Murray levels are target levels for movements and corrections.
• Volatility levels (red lines) indicate the likely price range the pair will trade within over the next 24 hours, based on current volatility metrics.
• The CCI indicator—its entry into the oversold area (below -250) or into the overbought area (above +250) indicates that a trend reversal in the opposite direction is approaching.