15.04.202610:11 Forex Analysis & Reviews: Demand for risk assets increasing

Yesterday's FX session was marked by sustained strong demand for risk assets. That optimism was driven primarily by reports that the US and Iran intend to take steps in the coming days toward organizing a second round of peace talks. This prospect has allowed traders to once again believe in the possibility of a positive resolution to the tensions in the Middle East, effectively giving a "green light" for riskier investments.

The countries' major goal is to hold an additional discussion before the current ceasefire agreement officially expires, which is scheduled for next week. That deadline adds urgency to the talks and spurs active diplomatic efforts. There were reports about one proposal to return to the original negotiation venue — Pakistan, where initial meetings took place last weekend. However, this option is not the only one under consideration; other potential locations for further consultations are also being actively examined.

Positive progress in talks is already having a noticeable impact on the euro, the pound and other risk assets. Expectations of a settlement of geopolitical risks typically support emerging?market currencies and reduce demand for safe havens such as the US dollar or the Swiss franc. Successful movement toward peace in the Middle East could lead to further reallocation of investment flows toward higher?yielding but inherently riskier instruments.

US President Donald Trump said yesterday that talks in Pakistan could resume within the next two days. That would be a continuation of the marathon but fruitless meeting in Islamabad last Saturday. In the interview, Trump again said he believes the war is "close to being over." He did not give a definitive answer on whether the US will remain in negotiations to reach an agreement with Iran or withdraw its troops without a peace plan. "Everything could end differently, but I think a deal is preferable because then they can rebuild everything," Trump said. "They really have a different regime. Whatever happens, we overthrew the radicals."

Meanwhile, the US continues a naval blockade of the Strait of Hormuz to limit oil exports from Iran as the fight for control over this strategically important waterway intensifies. The US has maintained a round?the?clock blockade with an armada of more than a dozen vessels, including destroyers and the amphibious assault ship USS Tripoli, escorted by F?35 fighters and Marine Corps vessels for boarding operations, as well as the littoral combat ship USS Canberra, which can assist with mine?clearing operations.

As I noted above, a ceasefire is beneficial for risk assets.

EUR/USD

Buyers now need to take the 1.1810 level. Only then can they target a test of 1.1840. From there, the pair can push to 1.1866, but doing so without support from large players would be difficult. The farther target is the high at 1.1880. On a decline, I expect serious buying interest only around 1.1780. If nobody shows up there, it would be prudent to wait for a new low at 1.1757 or to open long positions from 1.1725.

GBP/USD

Pound buyers need to take the nearest resistance at 1.3585. Only that will open a path to 1.3610, above which a breakout will be difficult. The farther target is the 1.3635 area. On a drop, bears will try to seize control at 1.3545. If they succeed, breaking the range would deal a serious blow to bulls and push GBP/USD toward 1.3510 with a prospect of reaching 1.3480.