The ceasefire in the Middle East has escalated into a low-intensity conflict. However, Donald Trump is prepared to be patient and continues to believe in diplomatic efforts. How long will his patience last? Let's analyze the situation and develop a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- Issues regarding oil supplies remain unresolved.
- Global GDP growth could be the worst since 2020.
- The US economy is strong.
- Short trades on the EUR/USD pair can be opened with targets of 1.54 and 1.146.
Daily Fundamental Forecast for Dollar
Donald Trump has made it clear that he has no intention of breaking the truce with Iran. The idea is that the current situation is under control, and negotiations with Tehran are ongoing. However, the markets are becoming increasingly convinced that what is happening in no way resembles a ceasefire. This is a low-intensity armed conflict. This is bad news for the EUR/USD pair.
The Strait of Hormuz remains closed, and issues regarding the resumption of oil supplies remain unresolved. At the same time, Donald Trump's willingness to endure the pain could ultimately hurt the global economy. According to OECD forecasts, if the conflict in the Middle East ends soon, the global economy will grow by 2.8%, inflation will remain under control, and central banks will not have to raise interest rates.
OECD Forecasts for Global Economy and Inflation
Source: Bloomberg.
Otherwise, global GDP will grow at its slowest pace since 2020, inflation in G20 countries will jump to 4.7%, and investors can expect two to three acts of monetary tightening.
OECD Forecasts for Central Bank Interest Rates
Source: Bloomberg.
The United States continues to distinguish itself as the strongest major economy. Recent data underscore its resilience: ADP private-sector employment rose by 122,000 in May, while the ISM Services PMI climbed from 53.6 to 54.5. If Bloomberg economists' projections for Nonfarm Payrolls are borne out, monthly job growth will have topped 100,000 for three consecutive months—the first such run since late 2024.
The stabilization of the labor market and accelerating inflation provide grounds for the Fed to tighten monetary policy. According to Dallas Fed President Lorie Logan, a rate hike may be necessary by the end of 2026 to curb stubborn inflation. The futures market puts the odds of such an outcome at 56%.
Given the strong economy, high demand for safe-haven assets, and the Fed's intention to tighten monetary policy, only a force majeure event could undermine the US dollar. According to Morgan Stanley, Kevin Warsh's appointment as Fed Chair could be such a surprise. It would mark the beginning of a multi-year downtrend for the USD index.
For now, however, that scenario appears difficult to envision. The Federal Reserve is not a one-person institution. While the FOMC includes both centrists and more dovish policymakers who may favor lower interest rates, policy decisions ultimately remain data-dependent. Current macroeconomic indicators continue to point to economic resilience and lingering inflationary pressures, leaving little room for a meaningful shift toward monetary easing.
Daily Trading Plan for EUR/USD
Without a US-Iran agreement, it is too early to buy the EUR/USD pair. If the price breaks through the 1.158 support level, short positions can be considered with targets of 1.154 and 1.146.
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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