The EUR/USD currency pair started the new week higher, but the growth halted quickly. On the one hand, the dollar naturally decreased on Monday as Iran and the US announced that they had reached an agreement. On the other hand, the market reacted with caution to positive news regarding the Middle East once again. Essentially, this article should focus on why the market responded cautiously to the news of an agreement.
Firstly, over the past 2-3 months, the market has received messages almost every other day that "the war is about to end," "the Strait of Hormuz will be opened literally in a few days," "Iran and the US are close to an agreement," and so on. Much of this information came from the White House, but Tehran refuted it just a few hours later. Therefore, the market prefers to wait for signatures and ratification of the agreement before celebrating.
Secondly, the agreement being discussed between Iran and the US is not a complete ceasefire; it is merely a preliminary agreement that will allow the Strait of Hormuz to be opened and negotiations on the nuclear issue to continue. It is easy to guess that another temporary ceasefire could break down at any moment, as has repeatedly happened since the April 7 ceasefire. Someone might shoot down a drone, considering it a threat, or a country not involved in the agreement might strike its personal enemies, and that would be the end of the ceasefire.
Thirdly, the market understands that a preliminary agreement and the opening of the Strait of Hormuz are positive, but if Tehran and Washington cannot reach an agreement on the nuclear issue, such a deal holds little value. Recall that Iran's nuclear program is the keystone behind Trump's decision to initiate the war. We have yet to see any reports in the Iranian press indicating that Tehran is ready to transfer enriched uranium to third countries and cease production of nuclear fuel in the future.
It should be understood that Iran has protected its right to nuclear weapons and fuel for 50 years. During this time, the country has been under worldwide sanctions, and its population has lived on the brink of poverty. How will the Iranian authorities explain to their people why they lived like they were in the Stone Age for half a century if Tehran is indeed ready to abandon nuclear weapons? We seriously doubt that Iran will give up its stockpiles of uranium and its ability to enrich it in the future.
We fully admit that Iran may try to hide at least part of its uranium and continue enriching it at secret sites. No one—neither Trump nor the IAEA—can control every facility in such a large country. As soon as one side catches the other in failing to fulfill conditions, a new war will immediately begin. While Iran has never blocked the Strait of Hormuz before, it may have realized just how effective this method can be, given that the United States made significant concessions to secure even a preliminary agreement.
The average volatility of the EUR/USD currency pair over the last 5 trading days as of June 16 is 52 pips, which is considered "average." We expect the pair to move between levels 1.1554 and 1.1658 on Tuesday. The upper channel of linear regression has turned upwards, indicating a shift to an upward trend. The CCI indicator has entered the overbought area, warning of a possible completion of the correction.
Nearest support levels:
S1 – 1.1597
S2 – 1.1536
S3 – 1.1475
Nearest resistance levels:
R1 – 1.1658
R2 – 1.1719
R3 – 1.1780
Trading Recommendations:
The EUR/USD pair continues its downward movement, presumably a correction within the global upward trend. The overall fundamental backdrop for the dollar remains extremely negative, and only geopolitical factors regularly support it. When the price is below the moving average, short positions can be considered with targets of 1.1536 and 1.1475. Above the moving average line, long positions are relevant with targets of 1.1719 and 1.1780. Hopes for peace between Iran and the US have increased this week, causing the dollar to lose its main support factor.
Explanations for the Illustrations:
Linear regression channels help determine the current trend. If both are directed in the same way, then the trend is strong right now;
The moving average line (settings 20,0, smoothed) defines the short-term trend and the direction in which trading should currently be conducted;
Murray levels are target levels for movements and corrections;
Volatility levels (red lines) represent the probable price channel in which the pair will spend the next day, based on current volatility indicators;
The CCI indicator's entry into oversold territory (below -250) or overbought territory (above +250) indicates an approaching trend reversal in the opposite direction.
