What is the US dollar missing? Escalation of the conflict in the Middle East should lead to increased demand for safe-haven assets. After strong US nonfarm payrolls, derivatives markets pushed the odds of Fed tightening in 2026 above 70%. The US economy looks strong and can afford higher borrowing costs, unlike the European economy, which contracted in Q1. Yet EUR/USD is in no hurry to fall.

Donald Trump said Iran would pay a price for dragging out peace talks. A deal could already have been struck, but Tehran is dragging its feet. Do the president's words mean that the bombing of the Islamic Republic, launched after a US helicopter was shot down, will continue? Much will depend on oil's reaction. Its response to the escalation in the Middle East has been rather odd.

Investors are so convinced a US-Iran standoff will end soon that they are demanding discounts when buying crude. Nobody wants to pay more for August-delivery barrels than they would if the Strait of Hormuz were open. At the same time, rising throughput of the world's main oil artery and reduced Chinese imports are weighing on Brent. Few seem concerned about the record drawdown in inventories.

If oil does not rise in response to further escalation, it will give the White House more political leverage. The US could return to active strikes on Iran in the hope that the oil market has adapted to a blockade of the Strait of Hormuz, that US inflation will not pick up, and that the Federal Reserve will be unable to raise interest rates.

Consumer prices in May indeed brought no surprises. Their 4.2% rise, and core inflation accelerating from 2.8% to 2.9% year-on-year, were forecast by Bloomberg analysts. The "sell the rumor, buy the fact" dynamic pushed EUR/USD higher. However, bulls are advancing northward cautiously.

The main reason is turmoil in US equities. First, stock indices fell in the largest sell?off wave since 2020, then they posted the steepest roller-coaster moves since the White House abandoned massive tariffs in 2025. Rising S&P 500 volatility has led to the closing of both equity positions and hedges. Those hedges had involved selling the greenback to insure currency risk; now the greenback is being bought.

Technically, on the daily chart, EUR/USD bounced off the lower band of the fair-value range of 1.1530–1.1680. If bulls manage to hold above the key pivot at 1.1555, the odds of a further rally toward 1.1615 and 1.1640 will increase. A break of that resistance would be a signal to