Unlike oil prices, which plummeted in response to news of negotiations between the US and Iran, the EUR/USD pair remains buoyant. Any stalemate in the talks between the two sides could strengthen the US dollar. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The US has sent Iran a list of demands.
- The EUR/USD pair avoided a sell-off like the one in 2022.
- The dollar is less vulnerable to positive news.
- If the euro settles below 1.16, a sell-off may start.
Weekly US Dollar Fundamental Forecast
The US is bogged down in the Middle East, and Donald Trump is frantically searching for a way out. The tactic of threatening to bomb energy infrastructure, followed by a statement that it will not be attacked, reminds investors of the president’s actions during trade wars. It gives rise to the TACO trade, or “Trump Always Chickens Out.” As a result, oil and the US dollar are falling on news of negotiations between Washington and Tehran.
The US claimed that Iran wanted to sign a deal, and this statement is backed by facts. The US sent Iran a 15-point list of demands via Pakistan, including a ban on nuclear weapons development. Tehran is preparing its response. The key goal is to reopen the Strait of Hormuz. According to estimates by the Vitol Group, at current throughput, the world is losing 70 million barrels of oil per week. Goldman Sachs forecasts that the total figure will reach 800 million barrels.
Currently, Tehran controls the Strait of Hormuz. Not only does it allow tankers from friendly countries to pass through the world’s primary oil route, but it has also begun charging a fee for this. The price per barrel from Saudi Arabia, which has alternative routes, reaches $160. Brent will move toward this figure if negotiations between the US and Iran fail.
For the US dollar, a de-escalation of the conflict in the Middle East would most likely prove fatal. The greenback’s main advantages—its status as a safe-haven asset and the currency of a net energy exporter—would be undermined.
EURUSD Rate and Germany-US 10-Year Rate Differential
Source: Bloomberg.
On the other hand, the EUR/USD pair did not fall as sharply as it did at the start of the armed conflict in Ukraine, because investors believed in a better outcome. The geopolitical risk premium, as reflected in the spread between US and German real bond yields, suggests that the euro should be trading significantly lower. That is precisely why rumors of talks between Washington and Tehran sent oil prices tumbling but failed to give the major currency pair a boost.
If EUR/USD quotes were sliding as quickly as they did four years ago, any positive news—including Donald Trump’s comments on the negotiations—would make the US dollar extremely vulnerable. Yet this is not the case. Moreover, if rumors of negotiations turn out to be a false start toward peace, the greenback could strengthen.
At the same time, a quick rally in the EUR/USD can also be ruled out. Oil prices are unlikely to return to pre-war levels before the end of 2026, which will maintain the risk of stagflation in the eurozone economy.
Weekly EURUSD Trading Plan
Against this uncertainty, it is necessary to monitor the progress of negotiations and keep an eye on the 1.16 level. If bulls fail to keep the price above it, short positions can be considered. Conversely, if they succeed, it would be a signal to open long positions on the EUR/USD pair.
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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