The EUR/USD pair plunged on Monday amid the military campaign by the United States and Israel against Iran. I would rather not list all the countries that have already entered into open military conflict or all the infrastructure facilities that were struck over the weekend. It is important to focus on the essence of what is happening. A new war has begun in the Middle East, and this time it risks becoming prolonged. How does this war affect the markets? Oil and gas prices are already rising rapidly due to the blockade of the Strait of Hormuz and a series of Iranian strikes on oil production and refining facilities in U.S.-allied countries. Demand for the dollar is rising at the same pace as oil prices, as investors are fleeing risky assets and shifting capital into safe havens. There is little more to add here.
Due to geopolitical events, the technical picture has been disrupted. We have witnessed an open confrontation between the chart structure and the news backdrop. This time, the news background prevailed. Under current conditions, traders need at the very least to wait for new patterns to form, and only then analyze the broader picture and assess the news environment. In my view, bulls had strong chances of continuing the trend until the very last moment, but the war in the Middle East has made adjustments. Now it is important to understand where the current dollar rally will end and whether the bullish trend will remain intact.
At the moment, there are no workable patterns—neither bullish nor bearish. Imbalance 12 has been invalidated or can be considered invalidated. Formally, it will only be canceled below the 1.1669 level, but it is unlikely that any trader is currently seriously considering buying and waiting for a reaction to this pattern. Let me remind you that it was tested twice, and in the second case, the price spent an entire week inside it. The bulls did not receive a second price reaction, so I consider this pattern canceled.
The technical picture continues to signal bullish dominance. The bullish trend remains in place. For now, however, the bullish scenario has been postponed indefinitely. In order to once again count on the growth of the European currency, new bullish patterns are required. To expect further dollar growth, bearish patterns and signals are needed. At present, there are neither.
Monday's news can be divided into geopolitical developments and other events. The other events did not affect market sentiment, while geopolitical developments led to a sharp decline in the EUR/USD pair.
In recent months, the bulls have had numerous reasons to attack, and even with the outbreak of war in the Middle East, those reasons have not diminished. Structurally and globally, Trump's policy—which led to a serious decline in the dollar last year—has not changed. In the near term, the U.S. currency may show growth amid investors' flight from risk, but this factor is unlikely to support it for long. Meanwhile, the (in any case) dovish outlook for FOMC monetary policy, Trump's trade war with the rest of the world, weakness in the U.S. labor market, two government shutdowns, U.S. military aggression, criminal prosecution of Powell, slowing GDP growth, and other unfavorable developments for America are not canceled by the conflict in Iran.
I still do not believe in a bearish trend. The dollar has received temporary market support, but it is far from certain that this situation will persist for a long time. The blue line shows the price level below which the bullish trend could be considered complete. The bears would need to push the market down by about 240 points to reach it, which still looks like a rather difficult task. Bearish patterns may form this week, which would make it easier to analyze the local picture and build forecasts.
News Calendar for the U.S. and the Eurozone:
Eurozone – Consumer Price Index (10:00 UTC).
On March 3, the economic calendar contains one fairly important entry, but once again, economics may remain in the shadow of geopolitics. The news backdrop will almost certainly influence market sentiment on Tuesday.
EUR/USD Forecast and Trading Advice:
In my view, the pair remains in the stage of forming a bullish trend. The news backdrop shifted sharply over the weekend, but the trend itself remains intact. Therefore, traders need new patterns in the near term to form short-term forecasts. If these are bearish patterns (which seems more likely), it is important to remember that the trend remains bullish and that geopolitical factors usually do not have a long-term impact. If bullish patterns form instead (which would be much more preferable), traders will have the opportunity to open new long positions that align with the prevailing trend.
