EUR/USD: Geopolitical Factors Analyzing Recent Market Swings

Despite a hesitant opening, the Euro is beginning to recover against the US Dollar on Monday, with losses starting to pare back.

Market sentiment experienced a rollercoaster ride due to escalating geopolitical tensions in the Gaza Strip.

The EUR/USD is now testing the upside around 1.0570 after initially sliding to 1.0555 to commence the week’s trading. The market mood took a nosedive following a rocket attack by Hamas in the Gaza Strip, resulting in the tragic loss of over 700 lives and prompting the Israeli government to deploy an additional 100,000 troops to the region.

Apprehensions about the potential involvement of neighboring Iran and Saudi Arabia in the intensifying Gaza conflict triggered a risk-off sentiment in early Monday trading. However, investor confidence appears to be making a recovery, and the Euro is gradually retracing its steps towards the day’s opening levels.

Euro investors are keeping a close eye on an upcoming speech by European Central Bank (ECB) President Christine Lagarde on Tuesday. She will be delivering important insights during the International Monetary Fund’s (IMF) annual meeting, currently taking place in Morocco.

Wednesday will bring US Producer Price Index (PPI) data, with expectations for an increase from 2.2% to 2.%. The same day, the Federal Reserve’s (Fed) latest meeting minutes will be published at 18:00 GMT.

Later in the week, a series of speeches by ECB officials will be followed by the release of the ECB’s meeting minutes. Additionally, the US Consumer Price Index (CPI) data will be published, anticipated to show a slight decline from 4.3% to 4.1% over the annualized period into September.

The initial market reaction to the military clashes between Israel and the Palestinian group Hamas turned out to be short-lived. This is evident from the positive turnaround in equity markets, which has diminished the Greenback’s status as a relative safe haven and provided further support to the EUR/USD pair. However, the current uptick lacks strong bullish conviction amid speculations that the European Central Bank (ECB) may hold off on additional rate hikes for the time being. As a result, aggressive bullish traders should exercise caution and prepare for potential shifts in the market.

From a technical perspective, the pair has now reached the 78.6% Fibonacci level after previously ignoring the 61.8% level. The current price zone represents the last opportunity for sellers to initiate a reversal at an optimal price. Our technical stop loss is set at 1.06500, and beyond this point, we will reassess the EUR for any potential trend reversal. In the H4 chart provided below, you can observe the price from a broader perspective compared to the H1 chart. There is a divergence on the RSI indicator, providing further indications of a potential price reversal before reaching the 1.06500 level.