Risk aversion wanes? The euro's brief rally behind the scenes

Tongtong Finance App News—— Monday, April 6, major financial markets were partially closed due to the Easter holiday, and the EUR to USD exchange rate showed a mild rebound. The price rebounded from the day’s low of 1.1505 and is currently trading near the 1.1550 area, but it failed to effectively hold above the intraday high of 1.1570. It remains firmly capped within last week’s choppy trading range. This trend is mainly driven by market risk sentiment being boosted by potential ceasefire developments in Iran; however, traders are still staying cautious, and the geopolitical risk premium has not fully disappeared.

Geopolitical easing boosts short-term sentiment for EUR to USD

The U.S. and Iran are discussing a 45-day ceasefire plan. If it is implemented, it will immediately end hostilities and reopen the Strait of Hormuz. This development injects some optimism into the market and helps drive a rebound in EUR to USD from the lows. As a critical passage for transporting about 20% of the world’s oil, the stability of the Strait of Hormuz is directly tied to energy price fluctuations and global supply-chain expectations. If a ceasefire moves forward, the geopolitical premium embedded in risk-asset pricing is expected to decline, which would be supportive for high-beta currencies such as the euro.

However, the market has not fully loosened its grip. U.S. President Trump recently reiterated that if Iran fails to reopen the strait, the U.S. will take severe measures to target Iran’s civilian infrastructure and energy facilities. This hard-line statement has left traders uncertain about the prospects for the agreement’s implementation, and the dollar’s safe-haven characteristics still receive some support. Traders closely monitor changes in the correlation between energy futures volatility and EUR to USD. With the current oil-price sensitivity still elevated, any adjustment to the details of negotiations could trigger a rapid repricing of the exchange rate.

March nonfarm payroll data exceeding expectations helps solidify the dollar’s resilience

The U.S. March nonfarm payroll report released last Friday showed net new employment of 178k, above the market expectation of 60k. The prior figure was revised from a decrease of 92k to a decrease of 133k, and the unemployment rate edged down to 4.3%. This data beat expectations, indicating that labor-market resilience remains intact—even though geopolitical factors have disrupted the broader economy.

After the data was released, the U.S. dollar index briefly received support, but EUR to USD did not drop sharply, showing that the easing-of-geopolitics news dominated exchange-rate pricing logic in the short term. Strong employment data may delay expectations for Federal Reserve rate cuts; however, in the current environment of global uncertainty, traders are paying more attention to what the data implies about the path of long-term growth rather than single-month fluctuations.

Service-sector PMI preview: moderate slowdown still within expansion zone

This week’s focus shifts to the U.S. March services purchasing managers’ index (PMI). The market generally expects the index to see a moderate pullback from February’s strong level of 56.1, but it is still expected to remain in a healthy expansion range above 50. As services are a major component of the U.S. economy, if the data matches expectations, it would further confirm the likelihood of a soft landing. It would also provide the Federal Reserve with additional windows to observe policy.

If a slowdown in services is accompanied by a decline in the price index, it would ease inflation pressure. Conversely, it could strengthen expectations for a more dollar-neutral-to-strong stance. For the euro area, the European Central Bank’s recent policy signals have been relatively cautious, creating some divergence with the Federal Reserve, which also provides an additional support variable for EUR to USD.

Technicals: the range-bound choppy pattern may continue in the short term

EUR to USD is still trapped in the narrow range of 1.1505 to 1.1570. The Bollinger Bands narrowing indicates volatility is currently low. The RSI indicator is hovering in the neutral region, lacking clear signals of being overbought or oversold. While the MACD histogram bars are slightly positive, the momentum is insufficient to drive a breakout. If ceasefire talks achieve substantive progress, the upper end of this range at 1.1570 could become a likely short-term testing target; otherwise, if Trump’s remarks further intensify tensions, the 1.1505 support level will face another test. Overall, there are no trend-following signals on the technical side at present. Range-trading logic dominates until a clear catalyst emerges from geopolitical or macroeconomic data.

Frequently Asked Questions

Question 1: Why can ceasefire rumors involving Iran drive a rebound in EUR to USD?

Answer: If a ceasefire plan is implemented, it will directly reduce the risk of energy price volatility and weaken the dollar’s safe-haven premium. Expectations of reopening the Strait of Hormuz ease global supply-chain pressures and allow market risk sentiment to warm moderately, which is supportive for risk-sensitive currencies such as the euro. But Trump’s hard-line comments limit the rebound’s upside, showing that geopolitical uncertainty has not been fully eliminated; the exchange rate is more likely reflecting short-term sentiment rather than a fundamental shift in the broader trend.

Question 2: Would a moderate slowdown in the U.S. services PMI forecast change the EUR to USD range-bound choppy pattern?

Answer: If the March services PMI matches the expectation of a moderate slowdown but still an expansion, it will confirm the U.S. soft-landing path and provide comparative support for policy divergence in the euro area. In the short term, it may be difficult to break the 1.1505–1.1570 range; but if the data significantly deviates from expectations, it could cause volatility to expand and test the range boundaries. The key is whether this data can resonate with geopolitical progress, jointly determining the direction of any exchange-rate breakout.

(Editor: Wang Zhiqiang HF013)

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