Euro remains vulnerable amid higher Crude prices, risk-off markets
- EUR/USD depreciates for the third consecutive day, but remains within range, above 1.1575.
- Rising tensions in Iran and high Crude prices are weighing on the Euro.
- In the US, April's PCE Price Index, due later on Thursday, is likely to set the US Dollar's direction.
The Euro (EUR) is picking up from weekly lows but holds moderate losses against the US Dollar (USD) on Thursday. The pair has returned above 1.1600 after bouncing at 1.1586 lows, although it remains bearish for the third day in a row, as growing tensions in Iran and higher Oil prices have dampened risk appetite.
Market sentiment soured on Thursday following news reporting fresh US attacks on Iran. Tehran also affirmed that it launched a strike on a US base in the Gulf, and Kuwait reported interceptions of hostile missiles and drones. These skirmishes have pushed back hopes of a swift end to the war and the reopening of the Strait of Hormuz, boosting Brent Oil prices above $94 from lows below $92 on Wednesday.
From a wider perspective, however, the pair remains in range, supported by market hopes of an upcoming interest rate hike by the European Central Bank (ECB). The ECB Watch Tool shows a 91% chance that the central bank will hike its Deposit Rate by 25 basis points to 2.25% at their June 11 meeting, and recent comments by ECB speakers have endorsed this view.
ECB's Chief Economist Philip Lane warned that second-round inflation effects from the energy shock will outlast the Iran conflict and affirmed that the bank must ensure that the feeling that inflation will remain high for a long time does not hold among the public or price setters. On Tuesday, ECB policymaker Isabel Schnabel said that the bank needs to hike rates in June.
In the US, all eyes will be on the Personal Consumption Expenditures (PCE) Price Index data for April, due later on the day. The Federal Reserve’s (Fed) favourite inflation gauge is expected to confirm that prices kept rising last month, adding to the case for the committee's hawkish party. Durable Goods Orders and Initial Jobless Claims will complement the picture of the US economic momentum.
Technical Analysis: The Euro keeps wavering within range
EUR/USD trades at 1.1610, maintaining a mildly bearish near-term bias yet with trading confined within an 80-pip range, between 1.1575 and 1.1660. The Relative Strength Index (RSI) remains below the midline, and a slightly negative Moving Average Convergence Divergence (MACD) reading hints at fading upside momentum, reflecting a market that remains vulnerable to additional downside probes.
Bears, however, should break support at the May 21 low, near 1.1575, to shift the focus towards the April bottom in the 1.1505-1.1525 area. A confirmation above the May 18 and 27 highs, in the area of 1.1660, on the contrary, would bring the May 14 low, at 1.1720, into focus ahead of May's peak, in the 1.1790 area.
(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 “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ 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 “risk-on”, stock markets will rise, most commodities – except Gold – 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 “risk-off” market, Bonds go up – especially major government Bonds – 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 “risk-on”. 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 “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s 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 – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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