Escalate threats to the maximum, then step back to achieve the goal. Donald Trump used this tactic back during trade wars. Iran resisted for a long time but eventually gave in. Let’s discuss this topic and make a trading plan for EUR/USD.
The article covers the following subjects:
Major Takeaways
- The US and Iran have agreed to a truce.
- De-escalation has weakened the US dollar.
- The odds of a Fed rate cut have risen sharply.
- As long as EUR/USD remains above 1.164, long positions prevail.
Weekly Fundamental Forecast for Dollar
Nothing ventured, nothing gained. Donald Trump went all in, pushing his threats to the extreme. He warned that an entire civilization could be destroyed, a statement seen as a signal of a potential nuclear strike. Iran responded by agreeing to a two-week ceasefire. Had it refused, the gambit might have been Trump’s last. The world would finally have seen that the emperor has no clothes. However, all’s well that ends well, for both the White House and EUR/USD.
Markets price in everything. It was difficult to understand why the US dollar was not strengthening despite surging oil prices. Spot Brent rose above $140 per barrel, higher than at the start of the conflict in Ukraine in 2022. However, EUR/USD remained stuck in the 1.15–1.155 range. This did not align with the greenback’s status as a safe-haven asset, especially as Treasury yields were rising alongside oil prices, making US assets more attractive and, in theory, supporting the USD index.
Oil and Treasury Yield Dynamics
Source: Bloomberg.
In reality, traders were on edge. They were waiting for signs of de-escalation in the Middle East and finally got them. Donald Trump’s announcement of a two-week ceasefire triggered a wave of FOMO — buy now or miss out. This wave is likely to sweep through the US equity market, but for now, the main beneficiaries have been Bitcoin, precious metals, and EURUSD.
And the last shall be first. These assets were sold off during the conflict, while oil was rising. It is no surprise that news of negotiations between Washington and Tehran on April 10 turned everything upside down. Brent fell by 16%, reducing inflation risks in the US. The Fed may no longer need to keep the federal funds rate at elevated levels. The derivatives market has raised the probability of a 2026 rate cut from 0% to 60%. Before the escalation, derivatives indicated a 50-basis-point reduction in borrowing costs.
Market Expectations for Fed Rate Changes
Source: Bloomberg.
The lower the rates, the weaker the US dollar. It is now being sold off amid fading demand for safe-haven assets. The euro, by contrast, is being bought as a pro-risk currency.
FOMO could push EURUSD significantly higher, but a truce does not mean the Middle East conflict is over. While Donald Trump talks about big deals, Iran insists on control over the Strait of Hormuz, and Israel continues strikes in Lebanon, Hezbollah’s stronghold.
Weekly Trading Plan for EUR/USD
The EURUSD rally looks impressive, and as long as the euro holds above 1.164, the focus should remain on buying. However, a pullback below this level or a failure to break above 1.1725 would signal a return to selling opportunities.
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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