Dollar eases slightly on the day as risk mood holds steadier
The dollar is experiencing a slight pullback as traders await developments in the US-Iran conflict, which is keeping market sentiment relatively stable. Per the full note from Justin Low at investinglive.com, the lack of new information has resulted in a cautious optimism among traders, with the dollar easing slightly while major currencies like the euro and pound gain modestly. This sentiment is reflected in the bond market, where persistent inflation concerns are limiting the dollar's decline. As traders assess the potential for a framework deal regarding the Strait of Hormuz, the dollar's movements remain muted, with EUR/USD hovering near 1.1760, indicating a balance between risk appetite and geopolitical caution.
What the desk is arguing
The desk contends that the dollar's recent weakness is largely a function of geopolitical uncertainty and market sentiment rather than a definitive shift in fundamentals. Per the full note from investinglive.com, the dollar's slight decline is accompanied by a steady rise in equities, suggesting that traders are maintaining a cautiously optimistic outlook despite ongoing tensions.
Supporting this view, WTI crude oil prices are down slightly, and S&P 500 futures are up, indicating a risk-on environment. The EUR/USD pair's current level around 1.1760 reflects this cautious optimism, as traders remain hesitant to push the dollar significantly lower without clearer signals from the geopolitical landscape.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.075, with a range between 1.04 and 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which sees potential for a stronger euro, while bofa holds a more bearish outlook. The desk's call is positioned at the upper bound of the consensus range, indicating a belief in the euro's resilience against the dollar in the near term.
How other firms see it
Firms aligned with a bullish euro perspective include jpmorgan and citi, while bofa and goldman express a more cautious stance on euro strength. The divergence in outlooks highlights differing interpretations of the ECB's potential rate hikes relative to the Fed's.
The trajectory of EUR/USD is closely tied to the ECB's monetary policy decisions and the evolving situation in the US-Iran conflict, which could influence risk sentiment and currency flows significantly.
What the calendar says
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There's not too much happening on the session as markets are largely waiting on fresh leads from the US-Iran conflict. So far, there's nothing new as we continue to wait on the supposed framework deal to at least free up the Strait of Hormuz. It still remains to be seen how such an agreement will work in excluding nuclear talks.
But baby steps I guess for now. As the wait continues, markets are keeping the faith at least. WTI crude oil is down 0.2% to $94.50 while S&P 500 futures are moving up by 0.4% on the day.
Wall Street continues to move to a different beat as the tech rally stretches on. Nasdaq futures are up 0.6% currently. In turn, we're seeing the dollar slip a little across the board.
It's not much but EUR/USD is touching 1.1760 levels, up 0.2% on the day. Meanwhile, GBP/USD is up 0.4% to clip the 1.3600 level and AUD/USD up 0.3% to 0.7230 levels currently. Major currencies have been lacking in responding strongly to the latest geopolitical headlines.
However, I guess that caution partly reflects the action in the bond market too. While stocks are racing higher, the bond market continues to suggest that inflation pressures will be here to stay regardless and will present problems for major economies. So, that's keeping the dollar selling somewhat in check despite it being more evident this week.
EUR/USD is a great example in displaying the mood among currency traders at the moment. The dollar while weak is not really breaking down to suggest an imminent US-Iran breakthrough just yet. That is reflected in price action holding just below the 1.1800 mark still.
Meanwhile, the pair is also still holding support closer to the 200-day moving average (blue line) - now seen at 1.1677. So, that indicates the dollar is also not running away with a stronger momentum as there is hope for things to become better. That being said, what is also interesting is that markets are pricing in more rate hikes by the ECB compared to the Fed at the moment.
And that is despite the euro area economy arguably being in a worse spot than the US. If you factor that in and the potential for either the ECB needing to climb down or the Fed needing to catch up, there's scope to argue for a lower EUR/USD down the road. But I'll leave that for a separate discourse.
For now, the pair is doing its job in telling us the kind of mood that currency traders are in. And that is one that continues to reflect cautious optimism about the whole US-Iran situation, despite the dollar easing this week. This article was written by Justin Low at investinglive.com.
Sources & References
How we cover this story
Related news on this pair
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