The EUR/USD pair has extended gains for a second consecutive day, holding above the 1.1700 mark despite disappointing German consumer confidence data. The GfK survey for April showed consumer sentiment deteriorating to its weakest level in over three years, dropping to -33.3 from -28.1, well below the market consensus of -29.5 [1][3]. However, the impact on the Euro has been mild, with technical indicators suggesting a neutral to mildly bullish tone. The Relative Strength Index (RSI) hovers around 50, and the MACD has turned marginally positive, indicating fading downside momentum but not enough to overcome resistance at 1.1730–1.1745 [1][2]. UOB analysts note that EUR/USD is in a short-term consolidation phase, with downside risk hinging on a break below 1.1665; a sustained move toward 1.1625 would require this level to be breached, while 1.1750 caps the topside [2].
The broader market remains cautious ahead of critical central bank meetings this week. The US Federal Reserve and the European Central Bank are both expected to keep interest rates unchanged, but the ECB may signal a hike in coming months due to accelerating inflation [1][6]. ECB policymakers, including Martins Kazaks, have adopted a wait-and-see approach amid high economic uncertainty caused by the ongoing conflict in the Middle East [6]. On the UK side, the Bank of England is also expected to hold rates steady at 3.75%, with analysts highlighting the vulnerability of the UK economy to rising energy prices from the Iran war [6].
Middle East tensions continue to influence market sentiment. Over the weekend, US President Donald Trump canceled a delegation's visit to Pakistan for talks with Iran, stating Iran's offer was insufficient. Iran reportedly sent a new proposal to the US to reopen the Strait of Hormuz and end hostilities, offering to postpone nuclear negotiations until after the blockade is lifted [1][3][5]. Peace talks remain deadlocked, with oil tankers blocked in Hormuz for two months and crude prices near $100 per barrel, raising recession concerns [1].
In currency markets, the US Dollar opened with a bullish gap but erased gains in early Asian trading, with the USD Index virtually unchanged at 98.50 [3]. The Japanese Yen underperformed its peers amid uncertainty surrounding the Bank of Japan's upcoming policy decision, with GBP/JPY edging up to near 215.70 [5]. The BoJ is expected to leave rates unchanged at 0.75% for the third consecutive meeting, with markets watching for signals of a possible June hike if the Iran conflict eases [4][5]. Commerzbank's Volkmar Baur notes that absent clear guidance, USD/JPY could test the 160 level [4].
Forward-looking statements from analysts suggest continued caution. Oxford Economics' Edward Allenby expects the Bank Rate in the UK to remain on hold for the rest of the year, with more clarity on the energy shock's impact expected by July [6]. ECB officials indicate no immediate rate changes, preferring to collect more data before making decisions [6].
CONCLUSION
The EUR/USD remains resilient above 1.1700 despite weak German consumer sentiment and ongoing Middle East tensions. Markets are focused on upcoming central bank decisions, with expectations of unchanged rates but possible future hikes signaled by the ECB and BoJ. The overall sentiment is cautious, with energy prices and geopolitical risks continuing to weigh on economic outlooks and currency movements.