Oil prices surge to two-week winning streak as Iran supply fears grip markets
Macro risk arrives just as EUR/USD and GBP/USD press against key technical levels. With rate expectations shifting and tail risks building, the next move may be driven more by catalysts than charts.
- EUR/USD, GBP/USD sitting near key technical levels
- Stacked US and European data threatens volatility
- Dollar trading tightly with yields and Fed pricing
- Tariffs and geopolitics add tail risk into weekend
Summary
We’re heading into the back end of the week with a stacked data calendar in both Europe and the United States, and that’s unlikely to be background noise for markets. This week has already shown how sensitive EUR/USD and GBP/USD are to shifts in relative rate expectations across the US, UK, and euro area. With both pairs now parked near key technical levels, the upcoming data run has the potential to do more than just stir volatility. It could dictate whether recent moves have legs or start to unravel.
Stacked Calendar Raises Volatility Risk
Source: TradingView
Flash PMIs rarely struggle to move EUR/USD and GBP/USD, largely because European traders tend to react far more aggressively to them than those elsewhere. In the euro area, attention will likely fall on price measures and new orders, particularly given the recent strength in the single currency. In the UK, the emphasis may lean towards prices, employment, and overall activity, reflecting the economy’s ongoing softness.
But the real headline risk sits in the United States. The advanced Q4 GDP release stands out. Yes, it’s dated and built on a fair degree of estimation, but it still has the potential to steer how the dollar ends the week. A beat reinforces the US exceptionalism story. A miss risks reviving Fed rate cut expectations that have been pared back following mostly solid data and relatively hawkish FOMC minutes.
Source: TradingView
As for December’s core PCE deflator, genuine surprises are now rare. Improvements in data mapping have largely stripped out its shock value, meaning there may actually be more interest in the consumption and incomes components. The consumption figure will be watched for signs that recent weakness in goods spending spilled over into services, while the incomes data should offer a clearer read on future spending capacity.
US flash PMIs can be hit and miss in terms of impact, often overshadowed when heavier data lands on the same day. The broader pattern, however, is that they’ve tended to overstate the signal from the ISM surveys, meaning the larger reaction may come if we see evidence of softening, particularly in services.
Weekend Risk Premium Builds
Beyond the stacked data calendar, traders must also navigate a series of potential tail risks into the weekend. The Supreme Court’s ruling on the legality of the IEEPA tariffs could arrive around 10am in the United States, although there is no guarantee a decision will be handed down today. Even so, the prospect alone is enough to keep markets cautious given the potential implications for yields and broader risk sentiment.
At the same time, Donald Trump has issued a 10-day deadline for Iran to strike a deal or risk military action. Given the threat to global energy supplies, alongside the United States’ standing as an energy superpower, any pre-emptive strike would likely favour the dollar relative to European currencies, particularly if it triggers a fresh bout of risk aversion.
As for tariffs, the market impact may prove contained regardless of the ruling unless concerns emerge that any gap in government revenues cannot be offset through alternative measures. Under such circumstances, both the dollar and longer-dated Treasuries may come under significant pressure.
Dollar Drivers Back in Focus
Source: TradingVew
Reinforcing the importance of the incoming data and event risk, the US Dollar Index (DXY) has exhibited a notably strong relationship with Fed rate cut pricing, front-end yield spreads, US 2-year yields, and Brent crude over the past week, as seen in middle pane of the graphic above. In effect, the dollar has once again been trading like a rates-and-yields story, with an added sensitivity to energy prices.
However, the 20-day correlations on the right tell a far less convincing story. Over the past month, these relationships have been weak and largely insignificant, a reminder that there is no guarantee the near-term grip will hold.
GBP/USD Downside Risks Build
Source: TradingView
As covered in separate analysis earlier this week, the release of key UK labour market and inflation data provided the spark to snap GBP/USD out of consolidation, combining with firm US data to trigger a breakdown through several levels, including the November uptrend and 50-day moving average, before coming to rest on the 200-day moving average. Whether you look at price action or oscillators, the message now leans towards downside risks.
RSI (14) is trending lower beneath 50, while MACD has slipped into negative territory after crossing the signal line from above, reinforcing the idea that downside pressure is building. Selling rallies is therefore preferred to buying dips, although the pair’s proximity to the 200DMA offers a clean level for traders to structure setups around as the data and news flow rolls in.
A sustained break below the 200DMA would open the door for shorts with stops above the level for protection, initially targeting 1.3371, with 1.3300 and 1.3250 as potential follow-up levels. Should the pair manage to hold the 200DMA, the setup could be flipped, with longs considered above the level and stops beneath, targeting 1.3535 where several technical markers, including the 50DMA, currently converge. Should the price be able to reclaim that level, it would call into question the newly adopted bearish bias, swinging directional risks back towards sideways to higher.
Triangle Structure Sharpens Focus
Source: TradingView
Sitting in a descending triangle and with the oscillators swinging lower, downside risks for EUR/USD also look to be building, with a break beneath the intersection of the 50-day moving average and support at 1.1768 perhaps the key to unlocking it. The doji candle that printed Thursday fits neatly with that backdrop, pointing to indecision among traders.
While the case for downside in GBP/USD appears more clear-cut given the UK data flow and lift in BoE rate cut pricing, the story is less straightforward for the euro, adding to the sense that the data and news flow later today may prove important in determining near-term direction. RSI (14) is trending lower and now just beneath 50, delivering a neutral signal. The same is also true of MACD, which has rolled over but has yet to turn negative.
The descending triangle keeps the downside break scenario firmly in play, but until that break materialises, it pays to keep an open mind on directional risks. If EUR/USD breaks and closes beneath the 50DMA/1.1768 zone, shorts may be considered with a stop above for protection, initially targeting 1.1684 or the key 200-day moving average.
Should the pair hold this zone, longs could be set with a tight stop below, targeting the January downtrend initially. If the price tests but fails to break that trendline sustainably, squaring up or initiating shorts with a stop above may be preferred, targeting a retest of the 50DMA/1.1768 region. However, a clean upside breakout would shift the picture, potentially opening the door to levels such as 1.1837 or 1.1918, swinging directional risks back towards sideways to higher.