FX Daily Strategy: Europe, Jul 21

Figure: Brent Futures Curve Start of Conflict versus July 14 (USD)

Our baseline remains that the MOU will hold and that the Straits of Hormuz will reopen.  Iran can be pressured economically by the U.S. naval blockade being re-established. Additionally, President Trump loves to escalate to de-escalate to get a deal, while the Republicans are under pressure before the mid-term elections for the Iran war worsening cost of living problems – gasoline could be heading back above USD4, with the latest bounce in oil prices.  It is also noticeable so far that Iran attacks in the region have been focused on U.S. military bases and have not extended to hitting energy infrastructure.

On the chart, the pair is still limited above the 162.50 congestion but pressure stays firmly on the upside. Further ranging action remains but bullish structure and the 3-week triangle pattern suggest potential for break going forward. Clearance will extend the underlying bull trend and see room to resistance at the 163.00/164.00 congestion and high of December 1986. Meanwhile, support is at the 161.28/00 area. Would take break here to open up room for deeper pullback to support at the 160.48 low and 160.00 figure. Break of these will fade the upside pressure and see deeper pullback to retrace strong gains from the May low.