Trump Criticizes Iran. Market Reaction
Donald Trump criticized Iran’s latest proposals for ending the conflict in the Middle East, stating that negotiations between the parties are "artificially kept alive".
The U.S. President, during a press briefing in the Oval Office on Monday, said that Tehran’s response to Washington’s conditions was a "piece of trash", adding that it "didn’t even read it through".
At the same time, the Republican, when asked about the possibility of a diplomatic solution, assessed that such a scenario is "very likely".
Early in the week, markets were under pressure after Trump deemed Iran’s vision of peace "unacceptable".
As reported by The Wall Street Journal, the key point of contention remains Iran’s nuclear program, especially enrichment of uranium by Tehran.
Read more about this in the article: Dollar rate changes direction. Trump rejects Iran’s proposals
The ongoing deadlock between the parties and emerging signals of a possible escalation further support oil price increases.
Comments on the current situation were provided by Mirosław Budzicki, financial markets strategist at PKO Bank Polski.
"In the near future, a moderate decline in oil prices below $100 per barrel is possible, but the direction of changes will largely depend on developments in the Middle East," he said.
"Expect continued high volatility", he added.
Since the beginning of March, it is evident that in a high-probability scenario of a peace agreement between the U.S. and Iran, Brent oil prices fall toward $80–90 per barrel. Conversely, escalation and the start of hostilities drive prices toward $120.
On Monday, prices returned above $100 per barrel. We are therefore in the middle of this range, which means that the market, in my opinion, values a moderately optimistic scenario, assuming that in the near future we will see de-escalation and the Strait of Hormuz will be opened at least for a large portion of vessels.
"Such expectations are supported by cost-benefit analysis of both sides, the possibility of achieving stated goals, statements from representatives of the parties, and legal and organizational constraints. With such an attitude, the market reacts more strongly to positive information", the expert said.
"On the other hand, when oil becomes too expensive, one can get the impression that the U.S. administration is trying to verbally calm the market, primarily suggesting a close end to the war and the possibility of an agreement", he added.
Mirosław Budzicki forecasts that in the coming days a short-term move in oil prices toward $110 per barrel is possible, "based on the criticism of Iran’s proposals expressed by the U.S.".
"In the following weeks, a rebound below $100 per barrel is likely", he concluded.
The Brent futures contract price currently hovers around $105 per barrel, while WTI is $99.
Source: Trading Economics.
Also read: Dollar rate on a long path to 4 PLN? Expert issued forecasts for USD/PLN and EUR/USD. "The dollar may gain"
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Dollar and Euro rates on Tuesday, May 12
The dollar to zloty rate on Tuesday, May 12 is at 3,60 PLN.
"Such commodity market changes would indicate a possibility of a short-term decline in the EUR/USD rate toward 1,17, and thus an increase in USD/PLN toward 3,65", Mirosław Budzicki said.
"Later, with the rebound in the oil market, I expect a medium-term rise in EUR/USD above 1,18 and a decline in USD/PLN toward 3,55", he added.
Chart. Dollar to zloty rate (USD/PLN)
Source: TradingView.
The euro to dollar rate reaches 1,17 USD.
Chart. Euro to dollar rate (EUR/USD)
Source: TradingView.
Also read: Dollar rate before a breakout? Expert: "Capital will flow back to USD"
See also: Dollar rate before a "nervous and dynamic" move, euro waiting for a drop? Expert issued a forecast for USD/PLN and EUR/USD
Source: Bloomberg, The Wall Street Journal.
