Despite divergent monetary policies, the EUR/USD pair continues to track oil price movements. At the same time, Brent is driven by shifting headlines and rumors surrounding US–Iran negotiations. However, for now, Washington and Tehran are far from reaching an agreement. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Iran has rejected the US 15-point plan.
- Tehran is demanding compensation for damages.
- Oil prices are rallying again, putting pressure on the euro.
- Short positions can be maintained if the EUR/USD pair drops below 1.1540.
Weekly US Dollar Fundamental Forecast
Donald Trump is trying to have it both ways. The US president wants to reshape the global economic system while supporting the US economy and financial markets. This is why his policies are full of contradictions. On the one hand, the US wants to deploy about 7,000 troops to the Middle East. On the other hand, Washington sent Tehran a 15-point plan to resolve the conflict. When Iran rejected it and put forward its own conditions, oil prices spiked, and the EUR/USD pair plummeted.
Tehran is demanding recognition of its control over the Strait of Hormuz, along with financial compensation for war-related damages. It insists that any outcome should not be framed as a US victory and views reports of negotiations as attempts to influence market sentiment. There may be some truth to this claim. Notably, just 15 minutes before Donald Trump posted on social media about a halt to strikes on Iran’s energy infrastructure—citing supposedly productive negotiations—abnormally high trading volumes were recorded in Brent and WTI futures.
Oil Futures Trading Volume
Source: Wall Street Journal.
The Democrats call this corruption. The US administration rejects the allegations as unfounded. However, all signs suggest that Tehran is, in fact, right. It holds the upper hand in this armed conflict.
The list of five conditions in response is an unbearable burden for Donald Trump. According to the Wall Street Journal, the US president wants joint control of the Strait of Hormuz and also expects a share of Iranian oil. The sides are so far apart that there is no talk of ending the war. No matter how much the US threatens to destroy a country of over 90 million people if it refuses to negotiate, the conflict will likely drag on for longer than the 5–6 weeks the US expects.
The closure of the Strait of Hormuz removes around 10 million barrels per day from global supply, with oil- and natural gas-importing countries feeling the impact first. Against this backdrop, European economic data is already weakening: PMI has fallen to a 10-month low, and Germany’s business climate indicator has also disappointed.
German Business Climate Indicator
Source: Bloomberg.
In this context, Christine Lagarde’s statement that the European Central Bank is ready to act decisively and persistently if inflation deviates from its target may prove to be more of a burden than a support for the euro. Higher interest rates risk further weakening the eurozone’s energy-dependent economy. Against this backdrop, Morgan Stanley’s view that the US dollar will soon decline due to monetary policy divergence appears questionable.
Weekly EURUSD Trading Plan
Since EUR/USD quotes are still driven by oil prices, it is too early to say whether short positions opened at 1.1600 are successful. For these positions to remain valid, the pair should settle below the 1.1540 level.
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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