EUR/USD hovers near 1.1500 as markets brace for a long war
- EUR/USD remains stuck near 1.1500, weighed by risk-aversion.
- The Houtis' irruption into the war widens the conflict and pushes back the idea of a swift end.
- German inflation data and Fed Powell's comments will provide the macroeconomic background later on the day.
The Euro (EUR) consolidates last week's losses near 1.1500 on Monday, with the US Dollar favoured by a dismal market sentiment. Investors are coming to terms with the Idea of a protracted war in the Middle East, with high Oil prices posing significant challenges for the crude oil-importing Eurozone economies
Most Asian markets have been trading in the red on Monday, and European bourses are poised for a negative opening. US President Trumpâs comments affirming that current Iranian leaders are âvery reasonableâ have been practically ignored, with investors wary about the entry of the Iran-backed Houthis on the scene to widen the conflict and to threaten the closure of the Bab el Mandab Strait, another chokepoint for Oil traffic, which might put things much worse.
In this context, Euro rallies remain limited. The pair is on track to close March 2.5% lower in the worst monthly performance since July last year. On the macroeconomic front, a batch of Eurozone confidence indexes and German Harmonized Index of Consumer Prices (HICP) might gather some interest during the European session. In the US, the focus will be on the Federal Reserve (Fed) Chairman, Jerome Powellâs speech at Harvard University.
Technical Analysis: The immediate trend remains negative
The EUR/USD trades at 1.1517, with the near-term bias mildly bearish after breaching the bottom of the ascending channel last week. The 4- hour Moving Average Convergence Divergence (MACD) histogram has turned negative with the line below the signal and both below zero, reinforcing building downside momentum, while the Relative Strength Index (RSI) near 43 stays below the 50 midline, indicating sellers retain control but without oversold conditions.
On the downside, the March 23 low, at 1.1484, is holding bears for now, closing the path towards the March 18 and 19 lows in the area of 1.1444.
Bulls are likely to be challenged at the reverse trendline, now around 1.1555, and the March 26 high, at the 1.1575 area. An unlikely confirmation above here would expose last week's highs in the vicinity of 1.1635.
(The technical analysis of this story was written with the help of an AI tool.)
Risk sentiment FAQs
In the world of financial jargon the two widely used terms ârisk-onâ and ârisk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a ârisk-onâ market, investors are optimistic about the future and more willing to buy risky assets. In a ârisk-offâ market investors start to âplay it safeâ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of ârisk-onâ, stock markets will rise, most commodities â except Gold â will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a ârisk-offâ market, Bonds go up â especially major government Bonds â Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are ârisk-onâ. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of ârisk-offâ are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the worldâs reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them â even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
