Rabobank’s FX Strategy team at RaboResearch Global Economics & Markets discusses how the Dollar initially benefited from safe haven flows during the Iran war, but has since softened as a ceasefire memorandum eased market tensions and tempered Fed hike expectations. They maintain a mildly constructive EUR/USD profile over coming months, while highlighting strong technical resistance and ongoing uncertainty around the Strait of Hormuz and Fed policy.

Rabobank maintains cautious EUR/USD optimism

"Despite the softer tone of the USD today, we would expect strong technical resistance to be provided by the 200 day and 50-day smas in the EUR/USD1.1673/77 area."

"Indeed, while the market has started to pare back its expectations for Fed rate hikes, pricing of ECB tightening has also been reined back this morning. This should temper the impact of changing Fed rate hike expectations on EUR/USD."

"For a while Rabobank’s has forecast that EUR/USD would likely move from the 1.15 area on a 1-month view to 1.16 on a 3-month outlook before edging up to the 1.17/1,18 area on a 6-to-9-month horizon. This outlook is based on the expectation that safe haven demand would likely fade on a 3-month view and that interest rate differentials would then favour the EUR."

"That said, have also maintained that a move to EUR/USD1.20 was unlikely this year given the growth constraints facing the Eurozone and the relative resilience of the US economy. For now we adhere to these forecasts but will look to review them later in June, dependent on the news flow regarding the ceasefire deal."

"That said, it is Rabobank’s view that Fed chair Warsh would prefer to keep policy on hold through to the remainder of the year, and an extension of the ceasefire and any progress to a re-opening of the Strait does speak to that outlook."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)