28.04.202600:48 Analisis Forex & Kajian: The Euro is Engaging in "Hawkish" Bluff

Iran has offered quite a bit, but it is insufficient. This was Donald Trump's reaction to the proposal made through Pakistani intermediaries from Tehran. The proposal discussed conditions for opening the Strait of Hormuz based on a new legal framework for tanker movements. The US must lift the blockade and guarantee non-aggression in the future. Investors' belief that the ceasefire will eventually lead to peace boosts the global appetite for risk and supports the bulls' counterattack on EUR/USD.

Everyone is thinking about tomorrow, but no one considers the consequences. The global economy is teetering on the edge of a cliff. The longer the Strait of Hormuz remains blocked, the higher the risks of Brent and WTI soaring and the likelihood of a global recession. The movement through this key oil artery of the world has essentially come to a halt.

Dynamic of Tanker Traffic Through the Strait of Hormuz

The most vulnerable will suffer the most. Primarily, countries and regions dependent on oil and gas supplies will be affected. This includes the eurozone, where weakness in business activity has become the first alarming sign for the economy. Meanwhile, the European Central Bank sticks to its "hawkish" rhetoric and supposedly does not intend to repeat the mistakes of four years ago. Back then, the Governing Council waited too long to tighten monetary policy in response to rising consumer prices.

Credit Agricole refers to the ECB's militant stance as a "hawkish bluff." Indeed, what is permissible for Jupiter—in our case, the US—cannot be permitted for the bull—the eurozone. Its economy is already suffering from high rates; why drive another nail into its coffin?

Still, the ECB will make an attempt. Bloomberg experts forecast consumer prices in the eurozone to accelerate to 3% in April, the highest level since the onset of the armed conflict in Ukraine. If they continue to sit idly by in such a situation, a retaliation in the form of a CPI surge to double-digit figures will follow very soon.

Dynamics of European Inflation

Thus, the ECB is in a dilemma. However, the markets seem to have made their decision. They expect the deposit rate to remain at 2% following the April Governing Council meeting, followed by "hawkish" comments from Christine Lagarde signaling a tightening of monetary policy in June. This is why EUR/USD is on the rise—thanks to the divergence.

The rally of the main currency pair is also supported by record highs in U.S. stock indices, which place downward pressure on the U.S. dollar as a safe-haven asset. Additionally, the readiness of Congress to vote for the new Fed Chair Kevin Warsh contributes to this. For this, the White House had to agree to halt the investigation into Jerome Powell.

From a technical perspective, the daily chart for EUR/USD shows a bounce from fair value at 1.169, with the bulls launching a counterattack. However, an unsuccessful assault on the pivot level of $1.176, or the inability of the euro to consolidate above support at $1.173, would signal selling opportunities.