As soon as oil stabilized on the news of the resumption of Iraqi oil exports through Turkey, investors rushed to the old drivers – divergence in monetary policy and the dynamics of US stock indices. The S&P 500 rally indicates an improvement in global risk appetite and puts pressure on the dollar as a safe haven asset. The closing of shorts on the eve of the Fed meeting played an important role in the bulls’ counterattack on EURUSD.
Since the beginning of the conflict in the Middle East, Iraq’s oil production has decreased from 4.4 million b/d to 1.4 million b/d. Baghdad was desperately looking for export options. As soon as I found it, the black gold market breathed a sigh of relief. Brent was helped by the IEA’s statement on its readiness to increase sales from strategic reserves from 400 million to 1.4 billion barrels, as well as Donald Trump’s words about the success of the US military in the fight against Iran targeting the Strait of Hormuz.
However, you can’t escape the truth. About 2 tankers per day pass through the main oil artery of the planet, compared with 100 in peacetime. It will take several weeks for the Strait of Hormuz to reopen. And that’s after the United States neutralizes Iran’s multi-level capabilities, including mines, assault vessels, submarines, and drones.
The flight to the US dollar at the start of the conflict in the Middle East increased the correlation of the greenback with American stock indexes to the highest levels since the beginning of 2025. Therefore, the rebound of the S&P 500, thanks to positive news from NVIDIA and other technology companies, extended a helping hand to the EURUSD.
However, the longer the confrontation between the United States, Israel and Iran lasts, the higher the risks of stagflation and recession in the global economy. This will bring the S&P 500 bears back to the market, deepen the correction, worsen risk appetite and allow the US dollar to shine. Unsurprisingly, the risks of a greenback reversal continue to grow, signaling high demand.
Traders are reinsuring themselves by closing short positions on EURUSD ahead of the Fed and ECB meetings. The European Central Bank has made it clear that it will not allow history to repeat itself in 2022. Back then, he delayed raising rates for too long to combat inflation. But the signals from the Federal Reserve may well turn out to be “dovish”. Three FOMC members are likely to vote for a loosening of monetary policy, which will affect forecasts.
