- EURUSD is finding support from the ECB.
- Donald Trump is calling on the Federal Reserve to cut interest rates.
Donald Trump appears to have found Tehran's Achilles heel: Kharg Island, which serves as a port to export up to 90% of Iranian oil. Brent oil prices fell somewhat following threats to destroy the island's energy infrastructure if the Strait of Hormuz is not opened. Consequently, it mounted a counterattack to retest the 1.15 resistance level.As the conflict in the Middle East intensifies, the link between the US dollar and oil is strengthening. This is creating a bullish outlook for the USD index until the standoff ends. The euro has been one of the main victims of fears of a potential return of the energy crisis in Europe. Once the markets put aside their emotions and started thinking rationally, an opportunity for a EURUSD pullback appeared. Indeed, current events have global implications. This differs from 2022, when the greatest impact was felt in the eurozone.
Four years ago, the Federal Reserve was far behind the Federal Reserve in tightening monetary policy. This was one of the reasons why the euro fell below parity with the dollar between August and November 2022. This time, the European Central Bank is determined not to let history repeat itself. He is willing to raise rates to maintain price control. According to the regulator's December 2023 estimates, an increase in Brent crude from $80 to $130 per barrel would slow GDP by 0.75 percentage points and add about 1 percentage point to inflation.
Donald Trump, on the other hand, anticipates that the Federal Reserve will ease monetary policy. The president has urged Jerome Powell to call an extraordinary and court meeting. In his opinion, even an elementary school student can see the need for this. Committee members are unlikely to heed the Republicans' call, although they may keep the door open for a resumption of the monetary expansion cycle. The futures market has been quick to rule out the possibility of two rate hikes in 2026. If the Federal Reserve maintains its previous stance, EURUSD is likely to rise.
However, while oil prices are on a firm upward trend, any rise in the major currency pair will be considered a correction. Without the resumption of operations in the Strait of Hormuz and a resolution to the conflict in the Middle East, the US dollar will remain strong. The local gains in the EURUSD may be related to reports of oil tankers passing through the world's main oil artery, as several Indian vessels have done.
The FxPro Analyst Team
