If the conflict in the Middle East ends, US stock indices and the euro may fall, while the rapid rally in the US dollar and oil prices will give way to sell-offs. Let’s discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- The US will end the conflict in 2–3 weeks.
- Markets are shifting into a TACO mode.
- The dollar has lost its main advantages.
- Long trades on the EUR/USD pair can be opened above 1.1585.
Weekly US Dollar Fundamental Forecast
When there is no decent way out, all that’s left is to put on a brave face. Donald Trump said that the US has achieved its goals in the war with Iran and that the armed conflict will come to an end in two to three weeks. According to the US leader, the country is tired of bearing the burden of protecting others’ energy interests, and if US allies want their oil back, they should reopen the Strait of Hormuz. Against this backdrop, the EUR/USD pair has surged as investors shifted toward the TACO trade.
After Liberation Day and sweeping tariffs, investors have developed a TACO pattern. The end of the conflict in the Middle East should turn yesterday’s losers into winners and vice versa. The S&P 500 and the euro will rise, while oil and the US dollar will decline.
How Assets Respond to Tariffs and Middle East Conflict
Source: Bloomberg.
There is a certain risk that events will not unfold exactly as predicted. Liberation Day in America was an internal political shock, while the bombing of Iran was an exogenous geopolitical upheaval. The global economy has weathered the tariffs, but will it withstand the impact of high oil prices? There is no guarantee that oil prices will plummet and return to pre-war levels of $65–70 per barrel by the end of the year.
The US withdrawal from the Middle East does not necessarily mean the end of the conflict. Iran has claimed that Donald Trump is negotiating with his own shadow. Tehran is ready to continue bombing neighboring countries, and the US, having left the region, can safely be called traitors. They have left not only Israel without support, but also the UAE, which was ready to join the coalition.
Let Donald Trump claim that the goals have been achieved. Supposedly, Iran will not be able to build nuclear weapons, the new regime is better than the previous one, and it will take 15–20 years to rebuild the country. However, Tehran’s control over the Strait of Hormuz means that it will be able to continue terrorizing the global economy and profit from transit fees. Brent will not collapse after the conflict, as promised by the US president and Treasury Secretary Scott Bessent.
As for the euro, optimism over a potential resolution to the Middle East conflict could push EUR/USD higher. The US dollar may come under pressure as demand for safe-haven assets and currencies of net energy-exporting countries may wane. As a result, traders will likely close their short positions on the major currency pair. At the same time, expectations of three acts of monetary tightening by the ECB are likely to fade.
Weekly EURUSD Trading Plan
If the EUR/USD pair breaks through the resistance level of 1.1585, the price will likely surge to 1.1635 and 1.168. However, the likelihood of consolidation remains high. Therefore, short-term long positions on the euro against the US dollar can be alternated with short positions.
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.
