Trump once believed he was the only one in the market capable of “drawing K-lines with words,” but it turns out Iran has learned the same trick. From last Friday to the beginning of this week, both sides have been locked in a tug-of-war over whether the Strait of Hormuz remains open and whether to extend ceasefire negotiations, each telling its own version of the story. Judging by market reactions, investors are largely in a passive, headline-driven mode: bullish news triggers risk-on buying, while negative developments lead to risk-off selling. Based on our analysis and judgment from last week, a delaying strategy remains the most likely scenario, with the key question being whether it is short-term or a more prolonged standoff.
1. Negotiation Tug-of-War: Tough Talk on the Surface, Mutual Concessions Beneath?
The latest development is that the US delegation has arrived in Islamabad to begin a “second round of talks” and/or extend the ceasefire agreement. Iran has refused to return to the negotiating table, while Trump has once again declared that he will destroy power plants and bridges. Clearly, these are tactics aimed at pressuring the other side while boosting domestic morale. At the so-called final moment, it is highly likely that both sides will step back slightly and resume discussions. Therefore, in the short term (April), it is in everyone’s interest to neither reach a formal agreement nor disrupt the fragile peace. This extended-cycle approach may last for about two more weeks, after which we should see a relatively clear outcome.
2. Three War Scenarios: How Will Markets React?
If the second round of negotiations fails and hostilities resume explicitly, there is a strong possibility of ground troop deployment, although the pace of progress and battlefield outcomes remain difficult to predict. On the other hand, if there is neither an agreement nor a full-scale conflict, the current pattern could persist until the midterm elections. The directional implications for most asset classes under these three scenarios have already been discussed previously, so we will not repeat them here. This week, we will focus on the foreign exchange market.
3. Structural Bearish Dollar View: A Decade-Long Breakout Opportunity for the Euro?
A long-term bearish stance on the US dollar has always been my view, with the euro as its primary counterpart. The euro is approaching a potential breakout level not seen in nearly a decade. Bulls have made several attempts before—none successful—but price has remained at relatively elevated levels, preserving the possibility of a breakout. Beyond technical factors, the market is clearly waiting for a catalyst from news flow or fundamentals to drive the move.
4. What Will Decide the Dollar’s Fate: The Middle East Endgame
The most direct driver would be a US setback in the Middle East/Iran, leading to a broader consensus that US/dollar dominance is in structural decline. A complete US withdrawal from the Middle East and abandonment of the petrodollar system is not a highly plausible scenario at present. Therefore, a ground war that ultimately ends in failure would be the only catalyst capable of accelerating a sharp dollar decline. Conversely, if the “fight while negotiating” pattern persists into the fourth quarter, it would act as a slow poison for the dollar. It would not trigger an immediate collapse, but it would gradually erode confidence in the dollar’s influence, ultimately helping the euro achieve a breakout.
5. Two Paths for a Dollar Rebound: Victory or the Narrative of Victory
That said, the dollar is not without opportunities. If a new round of conflict results in a decisive defeat of Iran, the dollar’s dominance narrative could reassert itself. Alternatively, if negotiations lead markets to perceive Trump and the US as clear winners, that alone could support dollar strength. A key focal point for this narrative is the status of the Strait of Hormuz. In the short term, whether the positive correlation between the dollar and oil prices can persist will largely depend on negotiation outcomes and progress. Over the longer term, however, the dollar has limited strategic options.
6. Weekly Trading Strategy: Positioning in GBP, Gold, and Crude Oil
For this week’s strategy, we continue to hold long GBP positions with an average entry price of 1.3250. The stop loss is set at the entry level of 1.3250, and the targets remain at 1.3700 and 1.4270.
The gold short position established last week remains in place: limit short at 5130, stop loss at 5440, with no target set for now.
The extreme-scenario crude oil order set last week also remains unchanged: limit long at 70, stop loss at 58, and target at 94.
$E-mini S&P 500 - main 2606(ESmain)$ $E-mini Dow Jones - main 2606(YMmain)$ $Micro E-mini Dow Jones - main 2606(MYMmain)$ $E-mini Nasdaq 100 - main 2606(NQmain)$ $Micro E-Mini Nasdaq 100 - main 2606(MNQmain)$ $WTI Crude Oil - main 2606(CLmain)$ $E-mini Crude Oil - main 2606(QMmain)$ $Micro WTI Crude Oil - main 2606(MCLmain)$ $Natural Gas - main 2605(NGmain)$
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