Did Iran really have to violate the ceasefire just so the US could develop a clear plan for resolving the conflict in the Middle East? Is force the only language the US understands? Let’s discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- The US is ignoring the ceasefire violation.
- The US reports progress in the negotiations.
- Falling oil prices are weakening the US dollar.
- Short trades on the EUR/USD pair can be considered on a pullback from 1.176.
Weekly Fundamental Forecast for Dollar
Iran is attacking energy infrastructure in the Gulf states and striking US naval vessels, yet the US claims there has been no violation of the ceasefire whatsoever, and that “Operation Epic Fury” has been completed 66 days after it began. Supposedly, its objectives have been met. Donald Trump has suspended the effort “Project Freedom” and announced significant progress in negotiations with Iran. The S&P 500 index has returned to record highs, while oil and the US dollar have fallen. At this point, you can hardly imagine a more absurd situation.
The US appears to be turning a blind eye to Iran’s alleged ceasefire violations. Reports of 15 missiles and 4 drones launched from Tehran toward Fujairah and other targets in the United Arab Emirates are being downplayed. At the same time, there is talk of progress in negotiations that have yet to formally begin. While the US appears reluctant to abandon the ceasefire, its counterpart may not share that stance—raising the prospect of a de facto unilateral truce. Meanwhile, traders are reducing exposure to oil, as reflected in declining open interest.
Open Interest in Crude Oil Futures Contracts
Source: Bloomberg.
When the currency market becomes heavily driven by movements in Brent and WTI prices, the setback the US faces amid Iran’s escalation can be seen as an argument in favor of buying the EUR/USD pair. At the same time, Eurizon Capital notes that the greenback’s muted reaction to tensions in the Middle East suggests investors are not overly concerned about a recession. According to the Dollar Smile Theory, the US dollar tends to strengthen in two scenarios: when economic conditions are strong, or when they deteriorate sharply. At present, it is difficult to argue that conditions are particularly strong, yet there is little evidence to suggest a severe downturn is imminent.
US Dollar’s Performance Amid Middle East Conflict
Source: Bloomberg.
What progress in the negotiations is the US administration referring to? Iran is not going to abandon its nuclear program. Most likely, the discussion will revolve around suspending it for a few years. Tehran will not stop controlling the Strait of Hormuz. At best, it will share the revenue from transit fees with the US. The war has not weakened Iran’s position. On the contrary, it has strengthened it. The US will withdraw its troops from the Middle East, and its allies will then be the ones to feel threatened.
However, before that happens, investors can expect more news about US-Iran negotiations, their failure, and a new stalemate. History unfolds in a spiral. Oil prices will fluctuate, and so will the US dollar. If Donald Trump does indeed have a clear plan for a peaceful resolution to the geopolitical conflict, the greenback will suffer. If the US leader is bluffing, all the better for the US currency.
Weekly Trading Plan for EUR/USD
The EUR/USD pair continues to consolidate within the 1.168–1.176 range. Until a clear breakout occurs, a sell-on-rallies strategy remains preferable.
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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