After an exchange of missile strikes between Iran and Israel, the region once again stood on the brink of full-scale war. Risk-off sentiment rose across markets, strengthening the safe-haven dollar.

Yet, despite the severity of the situation, sellers of EUR/USD were unable to translate that moment into a sustained move. In my view this price behavior reflects the position of the United States, which did not support this latest phase of the conflict and called on the parties to de-escalate immediately. Washington's conciliatory rhetoric allowed markets to hope that the "April scenario" would not repeat and that the current exchange of strikes would remain a local episode.

Nevertheless, conditions remain extremely tense, and, as pilots say, the situation is "on the verge of stalling," given the bellicose rhetoric and actions of both Israel and Iran.

In brief, yesterday, Israel was hit by an attack: Iranian forces launched 11 ballistic missiles. The situation prompted an immediate response from Donald Trump, who urged Israeli leaders to refrain from a retaliatory strike and said that a final agreement with Tehran was near. Nevertheless, Israel struck Iranian missile launchers and infrastructure sites in central and western Iran. Mehrabad Airport in Tehran was also attacked.

Despite Israel's decision not to heed the US president's request, traders reacted to events with relative restraint. Much of that response reflects further comments by Donald Trump, who said today that Netanyahu will have no choice but to accept a deal with Iran. He added that new Iranian strikes on Israel had not altered his desire to complete US-Iran negotiations and reach an agreement.

In other words, the United States is publicly signaling that the window for a deal remains open. Accordingly, US forces do not plan to rejoin strikes on Iran as they did in April of this year.

By and large, it is currently only Trump's stance that is preventing EUR/USD from collapsing into the 1.14 area. Going forward everything will depend on the actions or inactions of Israel, Iran, and pro-Iranian forces in the region. Houthi fighters in Yemen, backed by Iran, claimed responsibility today for missile strikes on central Israel. The movement also said it would block Israeli maritime traffic in the Red Sea, declaring all vessels connected to Israel legitimate military targets.

Even so, the fate of the negotiation process—and therefore of EUR/USD—now depends not on the Houthis but on the United States, Israel, and Iran. It is worth noting that Iranian officials are issuing contradictory statements. On the one hand, Foreign Ministry spokesman Esmaeil Baghaei said the United States "bears direct responsibility for Israel's violation of the ceasefire" (referring to an attack on territory in Lebanon). He also said incidents over the past 24 hours had only worsened the chaotic situation in the diplomatic process. On the other hand, neither Iranian nor US officials have said they are withdrawing from negotiations. Moreover, according to Baghaei, talks between Iran and the United States continue—the sides are still exchanging messages through Pakistani intermediaries.

Thus, the situation remains in limbo. In my view, the current escalation has not yet run its course despite Donald Trump's calls for de-escalation. For example, Al Jazeera reported that this morning a powerful explosion occurred at the Iranian Foreign Ministry building in Tehran. The nature of that incident is not yet clear, but EUR/USD has already reacted by dipping to the low of 1.15 area.

Overall, persistent tensions in the Middle East increase global inflationary risks, including in the United States. Combined with recent strong US labor data (May nonfarm payrolls showed an increase of 172,000 jobs) and strong ISM indexes, traders are increasingly confident the Federal Reserve will keep the policy rate unchanged at least until the end of the year. Market participants now also assign about a 40% probability of policy tightening in the second half of the year.

Under these circumstances, priority remains with short positions, but selling EUR/USD should be considered only when bears break and close below support at 1.1500 (the lower Bollinger band line on the H4 chart) and sustain levels below it. The main target for a southbound move is 1.1420, which corresponds to the lower Bollinger band line on the W1 timeframe.