Doing the same thing over and over while expecting a different result is called madness. Donald Trump first demanded regime change in Iran, then total capitulation. Now, the US president seems to be satisfied simply with the opening of the Strait of Hormuz. His tactic is threats followed by retreats. Traders are so fed up with TACO that they invented NACHO — "No Chance the main oil artery will be opened." That means the path for EUR/USD is set to the downside.

On Monday, Trump threatened Iran with retribution if it didn't hurry. On Tuesday, he postponed the allegedly planned strikes at the request of a three-country coalition — officially mediators, but in reality the states most at risk from any escalation. Tehran is targeting Saudi Arabia, the UAE and Qatar, damaging their energy infrastructure. So, it turns out everyone was scared of the US president's threats — except the principal adversary.

Markets initially rallied on news of supposedly ongoing talks, but within hours, everything returned to normal. The potential victims of escalation don't want fighting to resume. Iran is not afraid of the US and has no intention of opening the Strait of Hormuz. That means US inflation expectations will keep rising, nudging the Fed toward a cycle of monetary tightening. Great news for the dollar!

Inflation expectations dynamics in the US

The greenback holds very strong trump cards. Markets are increasingly convinced that geopolitical risks are more likely to intensify than to fade, which supports high demand for safe?haven assets. Rising oil prices benefit exporters — including the US. By contrast, the US's main rivals — the eurozone, Japan and the UK — import black gold. As a result, the US economy may slow, but it will look much better than its competitors.

Why hasn't EUR/USD plunged into the abyss or returned to parity as it did four years ago? The greenback owes its resilience to the US stock indices. According to Yardeni Research, the S&P 500 can continue its rise even in a stagflationary environment. The key is that companies keep making money. Their impressive corporate profits have helped the euro. But earnings season is ending, and investors are searching for new growth drivers — and not finding them.

A correction in US stocks could breathe new life into EUR/USD bears. Judging by the drop in futures on US stock indices, investors didn't buy Donald Trump's stories about positive progress in talks with Iran. That's what happens when someone too often passes wishful thinking off as fact.

Technically, a bearish engulfing bar may form on the daily EUR/USD chart, its body covering the previous bar's body. That would signal bear strength and support continued selling toward $1.154 and $1.144.