EUR/USD surges above 1.16 on ceasefire hopes - Commerzbank

According to US President Trump, there is allegedly a ceasefire between Israel and Iran. First, Iran is to lay down its weapons for 12 hours, followed by Israel for 12 hours, so that the war will be over within 24 hours. However, the situation remains precarious, as there is reportedly no agreement yet and no response from Israel, with the military reporting further attacks from Iran. Nevertheless, the markets reacted immediately to this news, with the dollar falling (EUR/USD jumped back above 1.16) and oil prices falling, Commerzbank's FX analyst Antje Praefcke notes.

USD to trade softly in the medium term

"The US Dollar had managed to appreciate across the board. This is primarily due to rising oil prices and the resulting improvement in the US terms of trade. However, I also see a certain degree of appreciation in the dollar's role as a safe haven. Confidence in this function of the US dollar has certainly been dented, but it is clearly still holding up to a certain extent in times of military conflict. The US demonstrated its military strength once again on Sunday. But I can also think of another reason why the dollar may have gained ground: the market may believe that things are not as bad in the US as they appear."

"If there are real signs of a détente or even an end to the Middle East conflict, Trump can once again focus on his 'enemy of the state,' Fed Chair Jerome Powell, who will explain the Fed's monetary policy at his semi-annual testimony before the House Committee on Financial Services today. It will be interesting to see how vehemently he defends his position and that of the FOMC against government pressure for lower interest rates. Pressure usually generates counter-pressure. In this respect, Powell may well convey his convictions clearly and unambiguously. If Powell comes across this way, the dollar could receive another short boost, especially if, in the end, there might not be a détente in the Middle East conflict."

"In principle, we stick to our view that the structural factors weighing on the dollar remain in place. Therefore, a correction in the USD like the one in the wake of the Middle East conflict is possible, but in the medium term we continue to expect a soft USD."