Market Summary - April 17, 2026
Dollar Plummets After Opening of the Strait of Hormuz
The USD Index (USDIDX) has seen a significant decline of 0.5%, continuing its downtrend following the announcement of the full opening of the Strait of Hormuz. This development has been linked to a negotiated peace plan between Iran and the USA, which has led to a surge in equity markets and a corresponding drop in the dollar.
As oil contracts collapsed, the dollar lost the gains it had previously accumulated amid geopolitical tensions. The USDIDX is now trading at its lowest level in over 1.5 months, with bearish momentum confirmed by technical indicators such as the EMA10 crossing below the EMA30 and EMA100. Although the RSI has not yet dropped below the overbought threshold, the price has stalled at the 61.8% Fibonacci retracement level of the recent upward wave.
EUR/USD at 2-Month Highs
In the wake of the conflict in Iran, there were discussions about the potential for euro-dollar parity if the European economic recovery stalled. However, the market quickly adjusted, and the EUR/USD pair has rebounded, trading above 1.18, levels not seen since before the Middle East conflict began. This rebound follows a breakout from a local bottom near 1.1400, driven by expectations of U.S. interest rate cuts.
Additionally, a strong rebound in the Risk Reversal indicator in the options market indicates that investors have ceased hedging against declines in the EUR/USD pair.
Central Banks Return to Center Stage
With the easing of tensions in the Middle East, monetary policy is expected to become the primary driver of volatility in the FX market. Recent trends show a decline in bond yields on both sides of the Atlantic, suggesting that investors are pricing in a reduced risk of long-term energy price surges and a global return to rate hikes. The swap market has already moved away from pricing in U.S. rate hikes, while the European Central Bank (ECB) is anticipated to raise rates by 25 basis points in July, with a 98% probability.
Investor positioning has been further supported by comments from ECB's Madis Muller, who indicated that a move in April could not be ruled out. The EUR/USD rate has aligned with the spread between German and U.S. 2-year yields, which have risen consistently despite geopolitical chaos. The potential end of the war and the opening of the Strait of Hormuz have reduced the likelihood of rate hikes on both sides of the Atlantic, although the ECB is expected to maintain a more hawkish stance compared to the Fed.