The euro-dollar pair is struggling to determine its direction. On Friday, traders set a two-month high at 1.1850. However, on the same day, the pair fell nearly 100 points, closing at 1.1766 on Friday. This was due to conflicting geopolitical signals.
Market participants were forced to make trading decisions against a backdrop of contradictory news: signals of rapproachment between the U.S. and Iran alternated with signs of distancing. The "open" Strait of Hormuz lasted less than a day before Tehran closed it again, as Washington refused to lift the naval blockade of Iranian ports. Moreover, according to India's Ministry of Foreign Affairs, two oil tankers under the Indian flag were attacked while attempting to cross the strait.
All these events nullified the budding hopes for stabilization, marking a clear rollback from the previously noted progress.
But on the other hand, the negotiation process is still ongoing. The US and Iran continue to interact through intermediaries, seeking compromise solutions. And although the very fact of holding a second round of negotiations is currently in question, hopes for a diplomatic outcome remain.
Therefore, the upcoming week could develop in two scenarios.
The first scenario is escalation. If the parties cannot set a new date for negotiations, do not extend the two-week ceasefire (which expires on April 22), and consequently resume military actions, the safe-haven dollar will significantly strengthen its position, regardless of the dynamics of macroeconomic indicators. In this case, the EUR/USD pair will return to the 16th figure area, targeting the support level at 1.1600 (the lower boundary of the Kumo cloud on the D1 timeframe).
However, an alternative scenario cannot be ruled out. According to The Wall Street Journal, Donald Trump instructed his negotiation team at the end of March to find a way to start a dialogue with Iran and reach a deal. Furthermore, according to WSJ sources, the Middle Eastern conflict is "increasingly perceived in the White House as a politically risky project." Insider sources claim that there are "growing opinions in the Trump administration that the war needs to be concluded as quickly as possible."
Considering these unofficial signals, it can be assumed that the parties will agree on a date for the second round of negotiations in the coming days and, consequently, extend the two-week ceasefire for another two weeks. In particular, according to Al Arabiya, a new meeting of delegations may take place on April 26 in Islamabad.
If the de-escalation scenario materializes, market interest in risk will increase once again, the EUR/USD pair will return to the area of the 18th figure, and macroeconomic reports will come to the forefront again.
It should be noted that the economic calendar for the upcoming week is not saturated with important events for EUR/USD traders. Still, some reports could provoke increased volatility.
Thus, on Tuesday, April 21, the March retail sales data will be published in the US. In the previous month, that is, in February, this indicator showed a positive trend, increasing by 0.6%. In March, the upward trend should be maintained: according to preliminary forecasts, total sales will increase by 1.4%, and excluding auto sales, by 1.3%.
On the same day (Tuesday), the ZEW indices will be published in Germany. As is known, this is a kind of "barometer of sentiments" among financial experts regarding the prospects of the German economy and the eurozone as a whole. In March, the business sentiment index in Germany sharply decreased, from 58.3 to -0.5 points. In April, negative dynamics are also expected, down to -6.7 points.
The overall European ZEW index similarly fell into negative territory in March. And in April, further decline is expected, from -8.5 to -10.3.
Among the significant releases this week, it is worth highlighting the PMI indices, which will be published on Thursday, April 23. In particular, the manufacturing sector business activity index in Germany is expected to decrease from 52.2 to 51.3. In the services sector, from 50.9 to 50.4. If these indicators remain above the 50-point level, the euro is likely to stay "afloat." However, if the indices unexpectedly enter the contraction zone, the European currency (and the EUR/USD pair) will face significant pressure, especially if the US manufacturing sector business activity index shows upward momentum. According to forecasts, this indicator will remain in the expansion zone, rising from 52.3 to 52.5.
And finally, on Friday, the IFO indices will be published. Unlike the ZEW indices, which reflect the expectations of financial experts, these indicators are based on surveys of representatives of the real economy. Therefore, they allow for an assessment of both current business conditions and business expectations. According to preliminary forecasts, the business climate index in Germany is expected to decrease to 85.6 from 86.4. This indicates a restrained decline in the IFO, amid a weak ZEW. It may suggest that financial market pessimism is outpacing the actual deterioration in the real economy. This means that either the economy demonstrates relative resilience to negative news, or there is a temporary lag – the deterioration in business sentiment will manifest later.
Thus, from the perspective of macroeconomic data, the upcoming week is expected to be low in informative character. Key reports are more likely to "highlight" the geopolitical agenda, which will set the tone for trading. All of this indicates that the direction of the EUR/USD will depend on the degree of agreement between the US and Iran: if the parties extend the temporary ceasefire and agree on a date for the second round of negotiations, the pair will return to the area of the 18th figure and will likely test the resistance level of 1.1840 (the upper line of the Bollinger Bands indicator on the D1 timeframe).
However, if further developments follow the escalation scenario (ceasefire termination, negotiation breakdown, resumption of military actions), the safe-haven dollar will once again be "in the saddle," and the EUR/USD pair will return to the area of the 16th figure with the prospect of breaking the support level of 1.1600 (the lower boundary of the Kumo cloud on the same timeframe).
We won't have to wait long for this situation to be resolved – as mentioned above, the two-week ceasefire expires on Wednesday, April 22. The intrigue remains, suggesting that any trading decisions on the EUR/USD pair (both long positions and short positions) are equally risky.
