How long will the conflict in the Middle East last? If it ends as quickly as it did in 2025, the EUR/USD pair may quickly recover its losses. If the conflict drags on, like in Ukraine, the US dollar will stand to gain. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Iran may follow Venezuela’s path.
- The Ukrainian scenario will drag EUR/USD quotes down.
- Rumors of negotiations are supporting the euro.
- Short positions on the EUR/USD pair can be opened on a breakout of 1.157 and 1.154.
Weekly US Dollar Fundamental Forecast
What scenario will the conflict in the Middle East follow? That of summer 2025, when the US and Israel attacked Iran for 12 days, or that of the standoff between Russia and Ukraine, which has been going on for more than four years? Markets are beginning to factor the second scenario into quotes. However, rumors that Tehran is ready to negotiate have prompted investors to gravitate toward the first scenario, with the EUR/USD pair posting its best daily rally in a month.
Hope for the best, prepare for the worst. Donald Trump does not rule out a Venezuelan scenario, where, after Nicolas Maduro was captured, the authorities began to cooperate with the US. However, the assassination of Iranian leaders and ongoing bombings are aimed at regime change by military means. This is a longer-term scenario that implies the rally in oil prices will continue, global inflation will accelerate, and economic growth will slow. This is the same scenario as in 2022. From the start of the armed conflict in Ukraine to the end of the year, the USD index rose by 6%.
US Dollar Index
Source: Bloomberg.
Meanwhile, markets remain optimistic, anticipating two rounds of monetary expansion by the Federal Reserve by the end of 2026, although they have shifted their expectations for the resumption of the cycle from June to July. This trajectory for the federal funds rate would imply that the conflict in the Middle East will be resolved. Vanguard expects the worst-case scenario. According to the asset manager, the Fed will only ease monetary policy once. The US labor market is stable, and the economy is capable of accelerating under the influence of the Big and Beautiful Tax Cuts Act. If so, then the EUR/USD pair still has room to decline.
Indeed, ADP’s February private sector employment growth of 63,000, the best since July, confirms Vanguard’s view. The fact that the Supreme Court has begun to demand that the US government return $130 billion in tariffs is rather positive for the US economy. Most of the fees were paid by Americans, so returning their money is like a new fiscal stimulus.
US Private Payrolls
Source: Bloomberg.
The fact that the US economy is in good shape is also evidenced by the higher-than-expected growth in the services sector in February. Against the backdrop of concerns about Europe as a net energy importer, we can talk about the return of American exceptionalism. Previously, this exceptionalism worked in favor of the greenback.
At the same time, there are exceptions, such as the New York Times article about Iran’s readiness for negotiations. However, as long as the baseline scenario involves a conflict lasting 4-5 weeks, the US dollar may strengthen even further.
Weekly EURUSD Trading Plan
Traders should weigh the risks and assess how long the conflict in the Middle East may last. In the meantime, short trades on the EUR/USD pair formed on a rebound from 1.164 proved profitable. The recommendation is to maintain short positions. A fall in the euro below the support levels of 1.157 and 1.154 may create an opportunity to increase them.
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
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
