Why Falling Oil Prices Could Change the Game in the Currency Markets [ABO]

May will be remembered for an historic move in oil. Brent fell by roughly 19% over the month, dipping back to around $92, marking its worst monthly performance since March 2020.

The engine behind this retreat is diplomatic: Washington and Tehran reportedly reached a preliminary agreement to extend their 60-day ceasefire and reopen the Strait of Hormuz, through which about a fifth of global oil and LNG passes. Tehran would commit to clearing the passage of mines within 30 days. An important caveat: Trump has not yet endorsed the terms, and JD Vance tempered the prevailing optimism. Nothing has been signed.

This pullback changes the inflation equation. Energy had been fueling the price spiral since the outbreak of the conflict at the end of February. If the price of crude stabilizes at a lower level for a sustained period, inflationary pressures should mechanically ease in the coming months.

And yet, the ECB is preparing to tighten on June 11, with a market-implied 90% probability. A 25 basis-point rise would lift the deposit rate from 2.00% to 2.25%, the first tightening since 2023. Why tighten when the energy shock is receding? Because the ECB does not react to yesterday’s oil, but to today’s inflation.

In April, harmonized inflation rose to 3.0% across the euro area, and May flash estimates show a persistent acceleration in France, Italy and Spain. The figures are in, and some governors would have argued for a hike as early as April.

And the euro, meanwhile, remains stuck below 1.17, caught between diplomatic optimism and Frankfurt’s monetary resolve.

When oil plunges, safe-haven currencies give up their gains first. The Swiss franc is the clearest example: EUR/CHF has risen to around 0.9105 after peaking near 0.90 during the crisis. The flight-to-safety pressure is easing, and the SNB, with its policy rate at zero, allows it to stand by.

EUR/USD remains stuck around 1.1654, near a six-week low. As long as the Fed keeps its range at 3.50%-3.75% with no hint of easing, the dollar maintains a yield advantage that outstrips every other factor. Technically, the 1.1550-1.1600 area acts as support: below it, the path to 1.1500 opens.

Above this, the 100-day moving average near 1.1720 caps any rebound. EUR/GBP hovers around 0.8650, with no significant underlying movement. EUR/CAD sits near 1.5980: the Canadian dollar is naturally exposed to oil, and a persistently lower oil price would weaken it, thereby mechanically supporting the pair. Finally, EUR/JPY around 185.5 is the issue to watch this week.

The Governor of the Bank of Japan is due to speak soon, and any signal about the continuation of Japan’s monetary normalization could wake a yen that has notably lagged.

	WEEKLY SUPPORTS		WEEKLY RESISTANCES
	S2	S1	R1	R2
EUR/USD	1.1500	1.1580	1.1720	1.1800
EUR/GBP	0.8560	0.8610	0.8700	0.8750
EUR/CHF	0.9020	0.9060	0.9150	0.9200
EUR/CAD	1.5850	1.5920	1.6050	1.6130
EUR/JPY	183.50	184.50	186.50	188.00

The supports and resistances shown below indicate, respectively, the low and high points within which prices are expected to move over the course of the week.

The information presented in this publication is provided for informational purposes only and does not constitute investment advice, an offer to buy or sell, or a solicitation to engage in any investment activity.

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