Whatever the US does, its position will worsen. Bombing energy infrastructure will drive up oil prices. Retreating from Iran will allow Iran to gain unchallenged control of the Strait of Hormuz. Let’s discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- Trump continues to threaten Iran.
- Tehran is charging fees for tanker transit.
- Optimism about a quick end to the conflict is fading.
- Short trades on the EUR/USD pair can be opened on price increases toward 1.16.
Weekly US Dollar Fundamental Forecast
Threats are not as frightening as the lack of a clear plan. Investors continue to digest Donald Trump’s speech and have concluded that the conflict in the Middle East will drag on for longer than the 2–3 weeks the US president promised. Calls from Washington for Iran to reconsider its position have had little impact on market sentiment. As a result, Brent crude has posted one of the strongest daily rallies in recent history, putting downward pressure on the EUR/USD pair.
The main beneficiaries of the conflict in the Middle East have been net oil and gas exporting countries. This status helps the US economy maintain stability and allows the Fed to keep interest rates high. According to the IMF, the Fed has a slim chance of easing monetary policy in 2026. Most likely, borrowing costs will remain at current levels throughout the year.
In theory, this factor should help the US dollar if other central banks followed suit. However, they are moving ahead of it. Thus, the futures market expects the ECB and the Bank of England to raise rates by 75 basis points. According to MUFG Bank, divergence in monetary policy is one of the key factors holding back the greenback’s advance. The second is ongoing uncertainty surrounding US policy, while the third is investors’ lingering optimism about a swift resolution to the conflict.
Iranian Light Crude Difference to Brent
Source: Bloomberg.
Tehran is increasingly reaping the benefits of the situation. There is little doubt that Iran now exercises significant control over the Strait of Hormuz, having effectively restricted access and begun imposing transit fees reportedly reaching up to $2 million per tanker. Oman was among the first to engage in negotiations, and reports of limited vessel movement through the world’s busiest oil shipping routes have periodically triggered pullbacks in Brent prices from swing highs. Interestingly, Iranian oil is now trading at a premium to Brent.
The faster optimism about a swift end to the armed conflict fades, the higher the US dollar is likely to rise. In this regard, Donald Trump’s threats to bomb Tehran back to the Stone Age and speculation about a ground operation are viewed as an escalation of geopolitical tensions.
On the other hand, a protracted war in the Middle East will eventually hurt the US economy as well. Although the US is a net energy exporter, providing some insulation against supply disruptions, oil prices are rising globally. As a result, gasoline prices are likely to rise, eroding consumers’ purchasing power and slowing GDP growth.
Weekly EURUSD Trading Plan
Markets need to shift their focus away from oil, and the US jobs report could act as a catalyst for that transition. Strong data would likely push EUR/USD quotes lower to 1.145 and 1.135. Conversely, weak data may trigger a rally, providing an opportunity to open short positions on upward moves toward 1.16.
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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