Markets have long wondered how quickly the conflict in the Middle East will end. The choice of Iran’s new supreme leader suggested one thing, while Donald Trump’s words suggested another. As a result, the EUR/USD pair faced a rollercoaster ride. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Trump claims that the war will end soon.
- The US is trying to increase oil supply.
- Brent could soar to $150 per barrel.
- Short positions on the EUR/USD pair can be considered on a breakout of 1.1605 and 1.159.
Weekly US Dollar Fundamental Forecast
When Forex exchange rates depend on a single factor, such as oil prices, it becomes apparent why the EUR/USD pair has been facing such turbulence. The major currency pair fell to its lowest levels since November, then recorded its best daily rally since January amid a surge in Brent prices, only to return to a bearish market within a matter of hours after Brent prices collapsed by 20% from four-year highs.
Donald Trump is clearly upset with what is happening in the Middle East. Rising oil and gasoline prices are hurting Republican voters and political ratings. The US president is surprised by Iran’s resistance and would rather believe what he wants to see. He says the military operation is ahead of schedule and will end soon. Not necessarily this week, but sooner rather than later. Before his speech, prediction markets gave a nearly 50% chance that it would only end by May.
Prospects for End to Middle East Conflict
Source: Bloomberg.
The fall in Brent prices was fueled by reports that several tankers had managed to pass through the Strait of Hormuz, and Donald Trump threatened Iran with new strikes only if it continued to block the world’s main oil route. In addition, the US has allowed the purchase of Russian crude, and rumors suggest that the G7 is discussing the release of oil from strategic reserves.
In fact, there is a lot of oil in the world; it just needs to be moved to bring down Brent prices. With the Strait of Hormuz closed, Brent crude could reach $150 per barrel and then fall and stabilize near $130, according to Capital Economics.
The yearly euro reversal risks have dropped to their lowest levels since Friedrich Merz gave Europe a fiscal boost. The futures market was considering whether the uptrend is over.
EUR/USD Performance and Risk Reversals
Source: Bloomberg.
Donald Trump’s speech about the imminent end of the conflict in the Middle East made a significant impact, but did not impress investors. Apparently, the US president is looking for a way out of the current situation, but he is unlikely to end the standoff with Iran unless he gets what he wants. He has the upper hand, especially since the US has military superiority. Besides, Brent and EUR/USD quotes are showing increased volatility, which means nothing is over yet.
Weekly EURUSD Trading Plan
Against this backdrop, oil is rising, while EUR/USD bulls are retreating after failing to push the price above the key resistance level of 1.164. At the same time, the risks of consolidation after the spectacular collapse and subsequent rebound in EUR/USD quotes are growing rapidly. If the euro fails to remain above the support levels of 1.1605 and 1.159, a sell-off will likely follow.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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