22.04.202610:51 Forex Analysis & Reviews: Markets act irrationally on eve of major war in Middle East (EUR/USD might decline lower, and oil prices might rise)

Markets remain in turmoil, and this will not end until the situation in the Middle East is finally de-escalated. The second round of talks between Iran and the United States, previously announced by the US president, has failed. Investors are showing noticeable complacency, assuming that peace will be achieved without escalation into a large-scale war. Is this irrational thinking or a mistake?

According to media reports, the Iranian delegation simply did not arrive in Islamabad, and J.D. Vance, Vice President of the United States, seeing this, understandably did not travel to Pakistan either. Markets reacted to this failure rather calmly and, in my view, suspiciously so. It creates the impression that market participants continue to fervently believe peace will be reached. They think the U.S. will somehow force Tehran to back down, surrender its nuclear fuel stocks to the United States, and admit defeat in the conflict.

But Tehran is not willing to yield for obvious reasons: it does not want to become a victim of the United States as Iraq or Libya did, when, for example, Gaddafi—then leader of the Libyan Arab Jamahiriya—simply refused to develop his own nuclear weapons and was punished and demonstratively killed for it.

Why are markets behaving this way? On the one hand, people want to live, want to believe in the best, and hope that nothing terrible will happen. But history—indeed recent history—shows that these hopes can collapse at any moment. Iran understands that it could be destroyed by the United States if it does not resist to the fullest of its capabilities. Trump, wanting to escape the crisis, cannot find a safe way out that would allow him to leave with his head held high.

In short, the situation is complicated, tangled, unclear, and incomprehensible. A signal that markets believe a peace deal will be reached is, for example, Bitcoin's price action, which quite unexpectedly began to rise yesterday after the talks failed.

Yes, hope is hope, but in reality, the situation in the Middle East is only intensifying, which, in my view, will lead to renewed escalation and to rising oil prices, declining demand for gold and cryptocurrencies, and a rebound in the dollar on the forex market.

Forecast of the day:

EUR/USD

The currency pair is trading above 1.1740. Deteriorating market sentiment could push it below this level toward 1.1665. A level to consider for selling is 1.1730.

#CL

Oil prices are rising. Escalation of the crisis could push them to challenge the recent local high of 104.45 after breaking resistance at 91.45. A level to consider for buying is 92.35.