17.06.202600:51 Forex Analysis & Reviews: Euro Experiences Euphoria

Markets first shoot up and then sort things out. Rumors of an end to the conflict in the Middle East boosted assets most adversely affected by geopolitics. Conversely, yesterday's winners became losers. In this respect, the fall in oil prices and the rally in EUR/USD appear logical. However, it is widely known that the devil is in the details. The text of the agreement is unknown, leaving investors to speculate: is this peace or just another ceasefire before hostilities resume?

The positions of the US and Iran on issues such as the nuclear program, the unfreezing of Tehran's assets, and its ballistic missiles differ dramatically. Donald Trump has bought time, but a two-month ceasefire following the opening of the Strait of Hormuz may not yield the desired results. The Islamic Republic has already backed out of negotiations before. Could another such step be a sign of escalation and of renewed investor interest in the US dollar?

Dynamics of Asset Managers' and Hedge Funds' Positions on the US Dollar

Following the resumption of bombings in Iran a week ago, interest in the greenback as a safe-haven asset surged to its highest levels since February 2025. Active position reduction by speculators has contributed to the EUR/USD rally.

Support for the euro comes from comments made by Christine Lagarde. The European Central Bank president noted that the central bank is observing a rapid penetration of high energy prices into core inflation. If this process continues, rates will need to be raised further. Currently, the futures market anticipates at least one act of monetary tightening in 2026. Against the backdrop of a declining likelihood of further Federal Reserve rate hikes, this divergence should support EUR/USD.

Market Expectations for ECB Deposit Rates

The first FOMC meeting under Kevin Warsh's leadership will serve as a litmus test for the US dollar. He has previously stated that the Fed needs to talk less and do more. Moreover, forecasts tend to confuse markets more than they help them. Nonetheless, the new head of the central bank will have to speak at a press conference and provide his opinion on the updated assessments of the federal funds rate trajectory. This brings risks for the greenback.

Given the improvement in the labor market and the acceleration of consumer prices in the US to a three-year high of 4.2%, monetary policy tightening could happen as soon as tomorrow. This is also supported by "hawkish" comments from Committee officials. However, if the rate forecast does not change, this would be extremely bad news for the bears in the main currency pair, indicating that all these discussions were empty. Strong data did not impress the Fed.

Technically, on the daily chart, EUR/USD is testing the second moving average after the activation of a double bottom reversal pattern. A breakout will allow for building upon the long positions opened at 1.1555.