FX Daily: War is over – maybe
The desk posits that the potential US-Iran peace deal could impact the dollar negatively amidst a backdrop of softening oil prices. Following President Trump's declaration of a ceasefire, markets exhibited typical optimistic responses, with Brent crude down 4% and the dollar retreating by 0.8% as short-dated US yields fell 10bps. Per the full note from ING, while progress appears to be on the horizon, the lack of Iranian confirmation and the historically volatile nature of such announcements pose significant uncertainty amidst a market eager for stable oil supplies and reduced inflation pressures.
What the desk is arguing
The desk suggests that recent developments regarding US-Iran relations and the possibility of a peace agreement may lead to further weakening of the dollar. Market reactions to these developments have been pronounced, with a notable decline in oil prices, indicating traders' expectations for peace and subsequent recovery in oil supply.
Despite initial optimism, concerns linger about the lack of concrete commitments from Iran, as they have not officially validated any agreement text. This lack of confirmation indicates that any recovery in energy supply—and by extension, a stabilization of associated inflationary pressures—remains tentative.
Where it sits in our coverage
Our current consensus target for EUR/USD stands at 1.1550, with a range from 1.1200 to 1.2000 through December 2026. Notable projections from firms include bofa at 1.2200, mizuho at 1.1700, and citi targeting 1.1200, suggesting a range of perspectives on the euro's trajectory against the dollar.
This view lands towards the lower end of the spectrum but is still within the wider consensus, indicating a divergent outlook compared to some bullish forecasts while aligning with those projecting a more subdued euro over the next few years.
How other firms see it
Aligned firms such as bofa and barclays seem optimistic about the EUR/USD outlook, citing targets around 1.2200 and 1.2100 respectively. In contrast, firms like citi and anz are more conservative, with targets significantly lower, suggesting a divided sentiment in the market regarding the euro's strength in light of geopolitical volatility.
With attention on the EUR/USD pair, market participants should also monitor developments in US inflation indicators and central bank communications, which will likely interlink with any outcomes from the ongoing US-Iran negotiations.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Potential US-Iran peace deal could pressure the dollar further amidst falling oil prices.
- 02Markets show initial optimism but lack confirmation from Iranian authorities.
- 03Current consensus for EUR/USD is 1.1550, with targets ranging up to 1.2200.
- 04Diverging forecasts among major banks indicate uncertainty in the USD's trajectory.
Market implications
Traders should closely monitor developments in the US-Iran peace talks and how they impact oil supply scenarios. A confirmed deal could trigger a shift in dollar positioning, particularly if energy prices remain subdued or decline further.
Risks to this view
A failure to finalize the peace agreement on favorable terms could lead to renewed tensions, thereby igniting a sharp economic response that could reverse the dollar's weaknesses observed in the wake of initial announcements.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Bank of America | Bearish | 1.1200 |
ANZ | Bearish | 1.1400 |
UOB | Bullish | 1.1565 |
Articles FX Daily: War is over – maybe 08:02 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download “We ended the war with Iran today,” said President Trump yesterday evening. Brent crude fell 4% on the news, while short-dated US yields and the dollar fell 10bp and 0.8% respectively, and US equities jumped 1.5%. We have been here before, where an imminent peace deal touted by the White House has failed to materialise.
Let's see what Iran has to say Chris Turner , Frantisek Taborsky and Francesco Pesole The dollar is a little softer after US President Donald Trump touted an imminent peace deal with Iran yesterday USD: Peace deal may be close, legacy is a stronger dollar Financial markets reacted with predictable optimism to news that another US-Iran peace deal may be imminent. Many investors are taking their cue from the oil market, where the surprising softness in energy prices over recent weeks has many guessing that oil traders have the inside track on peace negotiations. Who knows for sure, but it does seem that some progress is being made towards a new 60-day deal where the Strait of Hormuz would be opened, and Iran would be able to sell its oil.
Whether the Iranians want to hold out for better terms remains to be seen. So far, Iranian sources have yet to confirm agreement with the text in any Memorandum of Understanding. And the dollar has already retraced about a third of yesterday's losses.
For today, the market will again be headline-driven. Will Vice President JD Vance be getting on a plane to Europe to sign some kind of agreement? And more importantly, will we receive confirmation from Iran that it is happy with a deal and will also be sending a delegation to Europe this weekend?
Expect the dollar to be bounced around today on the ebb and flow of these headlines. But the legacy issue of this crisis has been the substantial loss of energy supplies and its inflationary shock sent around the world. Unless oil starts shipping freely in the Strait of Hormuz very soon, our house call is that energy markets could move close to a tipping point in July.
In turn, we would be wary about expecting much lower oil prices from current levels. With the fallout from the oil shock coming at a time of stable to positive US jobs numbers, investors are still wary of how the Fed will react. Short-dated US rates have come lower, but the market still prices 20bp of Fed tightening this year.
It is hard to see that being unwound ahead of next Wednesday's FOMC meeting, where a new-look statement and a new set of forecasts could prove dollar supportive. In short, we do not think the dollar needs to sell off too much further, even if there is good news out of the Gulf today. On today's US data calendar is the Michigan Consumer Sentiment.
Sources & References
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