Euro stalls below last week's highs with risk on markets, and thinned trading

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EUR/USD jumps from last week's lows but remains capped below 1.1650.
Comments about progress in the US-Iran peace process are feeding a moderate risk appetite.
Later this week, ECB's Lagarde and the US PCE Prices Index are likely to set the pair's direction.

The Euro (EUR) remains practically flat against the US Dollar (USD) on Monday, capped below the top of last week’s range, in the 1.1660-1.1675 area, with seven-week lows, at 1.1575 relatively close. The pair jumped at the Asian session opening, fuelled by hopes of a Middle East peace agreement, although it remains unable to extend gains in thinned holiday markets.

US President Trump said this weekend that an agreement between Washington and Tehran is possible, but also warned that the US military will not lift the blockade of the Strait of Hormuz until a deal is signed, which pushes down hopes of an immediate deal. Along the same lines, US Secretary of State Marco Rubio said on Monday that the US will give diplomacy every chance before pursuing other means.

Also on Monday, a spokesperson of Iran’s Finance Ministry confirmed that Tehran is negotiating the end of the war, but reiterated that the management of the Strait belongs to coastal countries.

The economic docket is void on Monday, and trading volumes remain low with US markets closed for Memorial Day. In the Eurozone, European Central Bank President Lagarde’s speech on Wednesday and a string of European Commission sentiment indicators will attract attention. In the US, all eyes will be on the US Personal Consumption Expenditures (PCE) Price Index, due on Thursday.

Technical Analysis: Sideways trading near seven-week lows

EUR/USD trades at 1.1644, trapped within last week's trading range, and still close to seven-week lows at 1.1575 despite some strengthening shown by momentum indicators. The 4-hour Relative Strength Index (RSI) hovers around 58, and the Moving Average Convergence Divergence (MACD) is trending upwards, with the histogram showing widening green bars. Both gauges highlight an improving upside momentum, yet not strong enough to force a clean breakout.

Immediate resistance emerges at 1.1660, a key support level in April, that capped bulls last week. Further hurdles are at the May 14 high, near 1.1720, and May's peak, at 1.1796. Downside attempts, on the other hand, are contained at the mentioned 1.1775 area (May 21 low). A confirmation below here would clear the path towards April lows between 1.1505 and 1.1525.

(The technical analysis of this story was written with the help of an AI tool.)

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

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.

What are the key assets to track to understand risk sentiment dynamics?

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.

Which currencies strengthen when sentiment is "risk-on"?

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.

Which currencies strengthen when sentiment is "risk-off"?

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.