Investors expected the reopening of the Strait of Hormuz to unleash a flood of oil onto global markets, sending prices sharply lower. In reality, it is likely to act more as a pressure-release valve, easing supply concerns rather than pushing prices lower. What does this mean for the EUR/USD pair? Let’s examine the implications and develop a trading strategy.
The article covers the following subjects:
Major Takeaways
- Markets are eager to see the terms of the US-Iran deal.
- Oil is unlikely to drop to pre-war levels anytime soon.
- The likelihood of a Fed rate hike remains high.
- Any decline in EUR/USD quotes should be viewed as an opportunity to increase long positions opened at 1.1555.
Weekly Fundamental Forecast for Dollar
Investors have questions. No one has seen the text of the US-Iran agreement. During the 15-week standoff with Iran, Donald Trump mentioned this deal 40 times, and now it has finally been reached. The markets reacted as they should have: the winners—oil and the US dollar—became the losers. The EUR/USD pair and stock indices shot up, while Treasury yields fell. Only then did investors realize that not everything is as good as it seemed.
Opponents present the terms of the agreement in different ways. Iran speaks of the withdrawal of Israeli troops from Lebanon, maintaining control over the Strait of Hormuz, and the absence of any obligations to halt its nuclear program. The US is presenting the deal as a victory for the American people, since the world’s key oil supply route will soon be opened, and Tehran has provided long-term guarantees not to develop nuclear weapons.
Forecasts for Reopening of Strait of Hormuz
Source: Wall Street Journal.
Such differences are raising serious doubts among investors that the pre-war status quo will be quickly restored. The situation appears to be a major strategic retreat by the US, with the Americans failing to achieve their military objectives. Furthermore, the Kalshi prediction market forecasts that a full resumption of shipping through the Strait of Hormuz is unlikely before August. Investors had likened its reopening to a floodgate, expecting oil to pour into global markets. In reality, it will be nothing more than a relief valve.
When you add to this the need to replenish global reserves—which are near critical levels—and repair the heavily damaged infrastructure of the Gulf states, a rapid return of Brent to pre-war levels is hardly to be expected. If so, inflation also risks lingering at elevated levels. This casts doubt on whether the US CPI surge is temporary.
Market Expectations for Federal Funds Rate
Source: Bloomberg.
The futures market has raised the odds of the Fed tightening monetary policy in 2026 to 57%. Following Donald Trump’s announcement of a deal with Iran, those odds immediately dropped to just under 50%. PGIM, which manages $1.4 trillion in assets, believes that the federal funds rate will be raised by 75 basis points by the end of the year.
Given this scenario, it is too early to write off the US dollar. Uncertainty regarding the terms of the US-Iran deal may buoy demand for the greenback as a safe-haven asset.
Weekly Trading Plan for EUR/USD
Markets often rush to price in expectations before all the details are known. The initial euphoria surrounding the end of the conflict in the Middle East has already begun to fade, leaving the EUR/USD pair vulnerable to consolidation until the terms of the agreement become clearer. However, the broader outlook remains bullish, making pullbacks an opportunity to add to long positions initiated at 1.1555.
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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