All wars end sooner or later with a peace agreement. A deal between the US and Iran could be formalized as early as next week in Switzerland. It would provide for a two-month ceasefire and the full lifting of the blockade of the Strait of Hormuz. The parties would then intend to discuss Tehran's nuclear program. Rumors of peace have never felt as real as they do now. Yet EUR/USD is in no hurry to rise.

A lot of strange things have been happening on Forex recently. The US dollar should have strengthened substantially due to its safe-haven status, the strength of the US economy, and the rising odds of Fed monetary tightening. The gap in real yields in debt markets signals that EUR/USD should be trading considerably lower.

EUR/USD dynamics and the sovereign yield differential

For some reason, the greenback has not revealed its potential. Does that mean it will weaken rapidly if it loses a trump card like geopolitics? The main currency pair's reaction to the growing likelihood of an imminent US-Iran peace deal shows that this is not the case.

Nordea Markets believes EUR/USD will rise in the medium term. The main restraining factors could be a stronger US economy relative to Europe, a hawkish-leaning Fed, and, finally, a protracted Middle East conflict. Judging by its likely swift resolution, one of the barriers to the euro's move north will soon be behind it.

At the same time, falling oil prices remove the second obstacle — US inflation likely peaked in May and should soon begin to decelerate following lower oil and gasoline prices. The transitory nature of high energy prices has led Bloomberg experts to abandon their earlier forecast of a federal funds rate hike. Now 32 of 35 economists expect the Fed to extend the pause until mid-2027, after which it will ease policy twice — in July and September next year.

Fed funds rate dynamics and futures?market forecasts

This view contradicts the signals from the futures market, which still expects monetary tightening in 2026. At the time of the US inflation print, the odds reached 75%. They have now fallen to just above 50%. In theory, that should significantly weaken the US dollar.

But just as the US currency was reluctant to rise in favorable conditions, it is not in a hurry to fall in unfavorable ones. Perhaps EUR/USD is waiting for the US stock market open.

Technically, the daily chart for the main currency pair showed a rebound from dynamic resistance in the form of a moving average. However, as long as EUR/USD remains above the pivot level of 1.1555, the bulls are in control. Traders should focus on building long positions in the euro against the US dollar.