Instead of the TACO or “Trump Always Chickens Out” trade, the market has come up with a new buzzword. It implies trading on the assumption that the Strait of Hormuz will never reopen, which is a bullish factor for oil and the US dollar. Let’s discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- Financial markets are getting used to the new circumstances.
- The chances of the Strait of Hormuz reopening are fading.
- Inflation data will provide a hint for the US dollar.
- Short positions can be increased if the EUR/USD pair falls below 1.174.
Weekly Fundamental Forecast for Dollar
There are no good options, and a new acronym has emerged in the market — NACHO, or “Not A Chance Hormuz Opens.” Polymarket has lowered the probability of the Strait of Hormuz reopening by the end of June from 88% to 42% over the past month, and Donald Trump has not ruled out a resumption of hostilities. The US does not want it, but the only alternative is a lousy agreement.
Realizing that the US is not inclined to resume armed conflict, Iran is portraying itself as the victor and demanding the lifting of sanctions and war reparations. In the Middle East, failing to respond decisively is often perceived as a sign of weakness. Donald Trump issued too many threats that ultimately went unfulfilled, emboldening Tehran and making it increasingly dismissive. Against this backdrop, investors are trading on expectations of rising oil prices, stronger equities, and higher Treasury yields.
Against this backdrop, the US dollar should strengthen. Morgan Stanley, however, expects it to fall due to improved global risk appetite and divergences in monetary policy. The futures market puts the odds of the federal funds rate remaining at 3.75% through the end of 2026 at 68%, while Bloomberg’s updated expert forecasts now include not one but two rounds of ECB monetary tightening in June and September.
Forecasts for ECB Deposit Rate
Source: Bloomberg.
In my view, if the Strait of Hormuz remains closed, Brent crude prices will climb even higher. At the same time, rising inflation expectations and persistently elevated inflation could force the Federal Reserve to consider tightening monetary policy. In such a scenario, the Fed would be more likely to raise rates than the ECB. The US economy is significantly stronger than Europe’s and is better positioned to withstand tighter financial conditions.
The ECB, however, will most likely have to remain cautious even against the backdrop of rising inflation forecasts to 2.9%, according to the latest Bloomberg survey of experts.
Forecasts for Eurozone Inflation Rate
Source: Bloomberg.
Against this backdrop, the release of US consumer price data for April could determine the EUR/USD pair’s trajectory. CPI is expected to accelerate from 3.3% to 3.7%, while core inflation is forecast to edge up from 2.6% to 2.7%. If the data exceeds expectations, the likelihood of the Federal Reserve tightening monetary policy in 2026 will increase, providing additional support for the US dollar.
Moreover, the stalemate in the Middle East conflict is preventing investors from abandoning the greenback as a safe-haven asset despite record highs in US stock indices and the strong global risk appetite.
Weekly Trading Plan for EUR/USD
The EUR/USD pair has failed to pierce the 1.178 resistance level for the fifth time over the past five days. When the market refuses to move in the direction traders expect, it often moves in the opposite direction. A break below the 1.174 support level would signal an opportunity to add to short positions initiated near the upper boundary of the 1.168–1.178 consolidation range.
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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