US Dollar May Weaken if Middle East Tensions Ease. Forecast as of 27.05.2026 | LiteFinance
The dollar could face a sell-off as a safe-haven asset if the US and Iran reach an agreement. However, it remains a high-yield currency. Rising global risk appetite should support this asset class. Let’s analyze the situation and develop a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- High inflation is likely to persist.
- Oil prices are unlikely to fall too low.
- The dollar will benefit from its status as a safe-haven currency.
- Short and long trades on the EUR/USD pair can be opened at 1.1615 and 1.1655, respectively.
Weekly Fundamental Forecast for Dollar
The US insists that the surge in consumer prices triggered by the oil shock is temporary. After one or two reports of rising inflation, it is expected to start declining steadily. Such a position will justify a cut in the federal funds rate and lay the groundwork for a rally in EUR/USD quotes. However, central banks are leaning toward a different view.
BoJ Governor Kazuo Ueda noted that the line between temporary and persistent inflation is not clear-cut. A temporary shock can become permanent if it affects wages, inflation expectations, and companies’ pricing policies. Central banks refer to these as second-order effects. They depend on how long oil prices remain elevated. Meanwhile, Brent crude does not look set to fall sharply even after the Middle East conflict ends.
Crude Oil Futures
Source: Wall Street Journal.
The Brent crude price fell below $100 per barrel for the first time in three weeks, driven by optimism surrounding the US-Iran deal. However, the futures market signals a prolonged period of high prices. The pricing of futures contracts points to the same levels as a month ago, when negotiations between Washington and Tehran showed no signs of progress. Brent is expected to trade at $83 by the end of 2026 and $76 in 12 months.
The main reasons cited include shipowners’ caution when transiting the Strait of Hormuz even after reports of its full reopening, as well as the protracted recovery of production in the Persian Gulf. The infrastructure of the latter countries has been severely damaged.
If oil prices do not drop sharply after the end of the conflict in the Middle East, as the US would like, a sharp decline in US inflation should not be expected either. The derivatives market has reduced the probability of a federal funds rate hike in 2026 from 60% to 47% over the past week, though the chances of a cut are estimated at a meager 0.6%. The main focus is on maintaining the status quo. However, the spread between US and European interest rates remains high, which favors EUR/USD bears.
Credit Agricole believes it is too early to count out the greenback. According to the Dollar Smile theory, it could benefit from rising global risk appetite as a safe-haven currency.
That said, if the conflict in the Middle East de-escalates, the US dollar could lose some of its safe-haven support. In that scenario, a short-term rally in EUR/USD would appear logical.
Weekly Trading Plan for EUR/USD
As long as the outcome of the US-Iran deal remains unclear, traders may want to stay out of the market or open trades on a breakout of the short-term consolidation range. If the price breaks through the resistance level of 1.1655, long trades can be considered, while a drop below the support level of 1.1615 could signal a good opportunity to sell the EUR/USD pair.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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