FX.co ★ EUR/USD: US dollar is temporarily strengthening again

Yesterday, the EUR/USD pair updated its one and a half year high, reaching the level of 1.2243. Thus, it appears that everything is in favor of the further development of the upward trend. The Euro was strengthening all over the market, while the US dollar index showed the opposite dynamics, plunging below the key level of 90.00. Now, the EUR/USD buyers have every opportunity to consolidate within the 1.22 mark. However, life began complicating the already difficult fundamental situation when geopolitics came ahead.

On the night of Thursday, it was reported that the United States launched an airstrike on Syria. This is the first US military operation since Joe Biden was inaugurated as US president. According to Bloomberg, the targets was the objects at a border checkpoint in eastern Syria. The CIA said that these military facilities were used by several militant groups at once. We are talking about the groups "Kata'ib Hezbollah" and "Kata'ib Sayyid al-Shuhada", which allegedly supports Iran. According to other sources, an object that directly belongs to the Iranian Armed Forces was struck.

Iran being mentioned in this context as well as in the currency market, is very important. The growth of anti-risk sentiment is directly related to the fact that the media started talking about the prospects of a huge war between Iran and the United States. In fact, yesterday's air strike became a continuation of the conflict that almost led to a military confrontation between the countries last year.

It is worth noting that an influential Iranian General, namely Qasem Soleimani, was killed in Baghdad on January 3, 2020. Later, Washington's official admitted that a high-ranking Iranian military official had been liquidated as a result of a US special operation. In response, the Iranians fired at two US military bases in Iraq. Many expected that this conflict would further escalate, but Donald Trump did not say anything about a military response. He only promised to introduce additional sanctions against Tehran. And so, this is where the conflict period between the United States and Iran, associated with the assassination of an Iranian general, ended. However, most experts on the Middle East were convinced that the problem was essentially not resolved, which is why the countries involved will eventually lead into a huge war.

The current situation in the region began to escalate again after Joe Biden was elected. For the past six weeks, militants have struck several strikes on targets used by US military personnel and diplomats. Rockets fell near the American embassy in Baghdad, and at Balad air base (where the personnel serving the fighters are located), and near Erbil International Airport, where five US citizens were injured. In each case, the United States was accused of organizing the attack by militants allegedly supported by Iran. Today, there was a military response for the first time: US President Biden ordered the armed forces to launched airstrikes, targeting pro-Iranian groups in Syria.

To simply put it, the current escalation of the conflict should be viewed through the perspective of previous events. During the start of 2020, when Iran and the United States were on the verge of a "big war", the US dollar behaved in a similar way, strengthening throughout the market, especially amid the first news regarding the spread of COVID-19. At that time, the EUR/USD pair fell by more than 200 points in response to geopolitical factors. Now, the response has been similar, but on a smaller scale. In my opinion, the US dollar is unlikely to organize a further rally. This option is likely only in the case of retaliatory actions or even verbal on the part of Iran. However, several political analysts believe that Tehran will not act in this case, maintaining a "meaningful silence". There are several reasons for this – the negotiations on the nuclear deal, the Astana process, and the pressure of economic sanctions. All this suggests that the dollar's strengthening is likely to be temporary.

From a technical point of view, this case is an exception, although the technique fades into the background when anti-risk sentiment surges. The fact is that despite the US dollar's strong strengthening all over the market, EUR/USD bears could not go below the level of 1.21. In view of the dollar's impulsive growth, sellers could approach the main resistance level of 1.2080 (middle line of the Bollinger Bands indicator, which coincides with the Kijun-sen line on the daily chart). However, the bears did not even test the nearest support level of 1.2130 (Tenkan-sen line in the same time frame), thereby confirming the upward trend. In my opinion, the current price reversal can be used as a reason to open longs with targets at 1.2200 (upper Bollinger Bands at D1) and 1.2243 (one and a half year high reached yesterday).