Economic Situation
The Middle East conflict has escalated to a broader scale. On Sunday, Iran struck for the first time six Gulf states (United Arab Emirates, Qatar, Kuwait, Oman, Bahrain, and Jordan) in retaliation for American strikes.
Until now, the confrontation had been confined to Washington and Tehran around the Strait of Hormuz. By targeting directly the Gulf monarchies, Iran widens the scope of the conflict, far beyond a mere escalation.
Everything accelerated since July 8, when Donald Trump declared the ceasefire terminated after the attack on three ships near Hormuz. Since then, U.S. strikes have followed one another (four in a week) and Tehran says it has closed the strait, which Washington denies.
The numbers speak for themselves: barely six ship passages between Thursday evening and Friday morning, compared with about twenty per day at the start of July. The United States has also reinstated sanctions on Iranian oil from July 17.
Markets reacted calmly but clearly. Brent crude rose to around $79, about 9% above its pre-war level. The dollar strengthened against all major currencies, and yields rose: the 2-year U.S. yield reached 4.23%, the highest since February 2025. In other words, investors no longer expect rate cuts, but higher rates for a long time.
The timing could not be worse: this oil shock comes just as inflation was easing. In the euro area, inflation fell from 3.2% to 2.8% in June thanks to relief from oil, now jeopardized again.
The ECB, which raised rates in mid-June for the first time since 2023, refuses to commit to further moves, but the market prices in about a 70% chance of another hike in September. In the United States, several Federal Reserve officials already see a need for a rise.
Concretely, as long as traffic through Hormuz remains disrupted, the dollar is likely to stay strong and the euro under pressure, given Europe’s heavy energy import dependence. But there is no panic: Iranian strikes remain limited, Brent is far from the $120 levels reached in past crises, and many analysts expect the barrel to stay between $70 and $80 this summer.
A return to diplomacy (a Qatari delegation has already visited Tehran) could bring tensions down as quickly as they rose.
Until now, the confrontation had been confined to Washington and Tehran around the Strait of Hormuz. By targeting directly the Gulf monarchies, Iran widens the scope of the conflict, far beyond a mere escalation.
Everything accelerated since July 8, when Donald Trump declared the ceasefire terminated after the attack on three ships near Hormuz. Since then, U.S. strikes have followed one another (four in a week) and Tehran says it has closed the strait, which Washington denies.
The numbers speak for themselves: barely six ship passages between Thursday evening and Friday morning, compared with about twenty per day at the start of July. The United States has also reinstated sanctions on Iranian oil from July 17.
Markets reacted calmly but clearly. Brent crude rose to around $79, about 9% above its pre-war level. The dollar strengthened against all major currencies, and yields rose: the 2-year U.S. yield reached 4.23%, the highest since February 2025. In other words, investors no longer expect rate cuts, but higher rates for a long time.
The timing could not be worse: this oil shock comes just as inflation was easing. In the euro area, inflation fell from 3.2% to 2.8% in June thanks to relief from oil, now jeopardized again.
The ECB, which raised rates in mid-June for the first time since 2023, refuses to commit to further moves, but the market prices in about a 70% chance of another hike in September. In the United States, several Federal Reserve officials already see a need for a rise.
Concretely, as long as traffic through Hormuz remains disrupted, the dollar is likely to stay strong and the euro under pressure, given Europe’s heavy energy import dependence. But there is no panic: Iranian strikes remain limited, Brent is far from the $120 levels reached in past crises, and many analysts expect the barrel to stay between $70 and $80 this summer.
A return to diplomacy (a Qatari delegation has already visited Tehran) could bring tensions down as quickly as they rose.
Exchange Rates: The Technical Update
The euro/dollar traded around 1.1404 on Monday’s open, down slightly from Thursday’s 1.1435. The euro sits in a paradoxical position: it should benefit from the ECB’s policy (a further rate hike in September is priced in at about 70%), yet that support is overwhelmed by two forces—the dollar’s status as a safe haven and high American rates (2-year at 4.23%). Since January, the euro has fallen about 2.8% against the greenback.The next major event is the U.S. inflation release on Tuesday: if it surprises to the upside, the dollar will strengthen further ahead of the Fed meeting on July 29; if it comes in as expected (around 3.8%), the euro could catch a bit of a break.
Against the Swiss franc, the euro remains near its lows for the year, around 0.922. As long as geopolitics dominates, a rebound seems unlikely: even the calmer moments in June produced only small and short-lived gains.
Notably, the yen is not playing its usual safe-haven role. EUR/JPY sits near 184.4 and USD/JPY around 161.7. Japanese government bonds were even sold on Monday, signaling that the rate gap with the United States weighs more than risk aversion. Good news for companies paying suppliers in yen: current levels remain historically advantageous.
The Canadian dollar benefits from higher oil: EUR/CAD trades around 1.615, vs 1.62 on Thursday. The Bank of Canada will announce its decision on Wednesday, and keeping the rate at 2.25% is the consensus. It is caught between a slowing economy and energy-driven inflation. Canada, being a net oil exporter, sees oil’s rally support its revenues and therefore its currency.
Finally, the British pound is advancing quietly but surely: EUR/GBP has fallen back to around 0.852, from about 0.862 at the end of June. The pound benefits from attractive British rates for investors. The UK’s upcoming activity data this week will indicate whether this advantage remains.
| WEEKLY SUPPORTS | WEEKLY RESISTANCES | |||
| S2 | S1 | R1 | R2 | |
| EUR/USD | 1.1180 | 1.1290 | 1.1520 | 1.1630 |
| EUR/GBP | 0.8350 | 0.8430 | 0.8600 | 0.8690 |
| EUR/CHF | 0.9035 | 0.9125 | 0.9310 | 0.9400 |
| EUR/CAD | 1.5830 | 1.5990 | 1.6310 | 1.6470 |
| EUR/JPY | 180.70 | 182.55 | 186.25 | 188.10 |
The weekly supports and resistances shown below indicate, respectively, the low and high points within which prices are expected to move during the week.
The information presented in this publication is provided for informational purposes only and does not constitute investment advice, an offer to sell, or an invitation to buy; it should in no case be used as a basis or be considered an incentive to engage in any investment.
Mondial Change is a French financial institution, founded in 2015, specializing in the management of international payments and exchange-rate risk.
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Mondial Change supports numerous players in tourism, travel agencies, tour operators, handling incoming groups…
www.mondialchange.com
Contact: [email protected]
