Market situation on July 24 - is the TACO option getting closer?
He also added that Iranians would like to reach a peace agreement, but they are not yet ready for it. This narrative resembles what we have seen many times before – the TACO pattern, where the US president first threatens strongly, then pulls back.
It is worth noting that Iranians consistently reject the possibility of a ceasefire and a return to talks proposed by mediators and neighboring countries (most recently the Iraqi prime minister).
Conversely, the decision to open a new front of economic blockade in the Red Sea with the support of Yemeni Houthis shows that it is Iran that still controls the "escalation ladder" in this conflict. Thus only the TACO scenario could provide a brief respite in the markets.
Will we witness it in the coming days? On Friday oil retraces from its highs, the dollar also pulls back, and there is an attempt to vent on contracts on Wall Street. By the end of the week, markets are not escalating but trying to find some de‑escalation gateway.
This may be short‑lived, as it seems both the US and Iran do not really know how to end this war, whose continuation does not bring us closer to any concrete outcomes. The Trump administration is on track to win the November midterm elections, with Republicans taking both houses of Congress, but that is the smallest problem – the headache is the war’s impact on the global economy.
We are heading into an environment of heightened inflation, which central bankers do not deny. Yesterday the president of the European Central Bank did not meet market expectations for a September rate hike. Markets speculate on similar moves by other central banks – BOE, RBA.
In the case of the Fed, the path is becoming increasingly "hawkish" – valuations are moving toward up to three rate hikes by mid‑2027.
The dollar pulls back in the broad market
On Friday morning the dollar still pulls back in the broad market. The only exception is the slightly weaker Norwegian krone, which may be linked to oil’s retreat from its peak.
Among the G‑10 currencies, AUD and NZD perform the weakest, followed by SEK, GBP, and EUR.
JPY remains stable, having reached a 40‑year low against the dollar at 163.98 yesterday.
The US Treasury, in a published periodic report, described this situation as "manipulation" and called for actions to change it. Does this signal a specific intervention? It is a low‑probability scenario given that the "dollar flow" in markets has strong medium‑term fundamentals.
Moreover, what Americans say and do is becoming less "understood" by the markets.
Yesterday the Department of Commerce announced the implementation of new tariff rates for over 60 countries ranging from 10 to 12.5%, intended to continue the expired tariffs imposed in the spring after the Supreme Court challenged earlier rates.
For many countries this move is a significant surprise, even ignoring the timing of such a decision – although some imports of certain raw materials will be exempt from fees.
Today’s macro calendar includes a day with June PMI estimates. Those for the eurozone came in above forecasts – industry rebounded to 52.0 points, and services to 51.6 points. We also received equally good data from Australia.
We still have readings from the UK (10:30) and the US (15:45), which should bring similar positive indications. Is this a signal that things are not so bad? One could be pleased with this data if we had a prospect of calm in the Middle East, but that is not the case.
EURUSD – flag breakout and what next?
Yesterday, on a wave of some disappointment not as "hawkish" as the ECB’s message, the EURUSD broke its low and simultaneously broke support at 1.14.
More importantly, the strength of the dollar, reflecting higher oil, is driving an inflationary spiral. Today oil has pulled back slightly from its highs, creating room for a rebound in EURUSD, but the move’s character resembles a retracement pattern.
This would mean that the chances of a clearer return are slim, and over the week, a test of the June mid‑month low at 1.1324 and its breach is a fairly likely scenario.
Daily EURUSD chart
