EUR/USD continues to consolidate inside the 1.14 figure, showing sideways dynamics. The volatility spike observed on Monday has gradually faded. The pair fell almost 50 pips, but it was unable to close below the support level at 1.1410, which corresponds to the middle line of the Bollinger Bands on the D1 timeframe.

Such phlegmatic EUR/USD dynamics clearly contrast with the scale of geopolitical events unfolding in the Middle East. Despite ongoing exchanges of strikes between the US and Iran and threats by the Houthis to block the Bab al-Mandeb Strait, the market does not show a pronounced demand for the dollar as a safe haven. Why is that the case?

In my view, this muted price action is explained by a combination of several fundamental factors.

An important marker here is the oil market, which is also resisting panic and shows a very restrained reaction to events. Yesterday Brent hit a five-week local high (peaking at $91.35 per barrel) in response to a resonant Houthi statement. But almost immediately the price reversed to the downside—the close was at $88.75. Today Brent also shows a muted mood despite the absence of any clear new news flows.

In my view, the oil market no longer prices in a prolonged blockade of key sea routes, especially since Houthi threats to close the Bab al-Mandeb Strait are not new. Similar statements have been made in past years, irrespective of the US-Iran conflict. Local attacks raised insurance rates and lengthened logistics, but a full stop to global trade through the Red Sea has not occurred. In other words, market participants are not currently pricing a scenario of a large-scale energy crisis. By comparison, in spring Brent impulsively rose to $110–120 per barrel in reaction to the hot phase of the Middle East conflict. Today, by contrast, crude is struggling to hold near $90 even though there are no clear de-escalation signals at present.

Second, the greenback's dynamics today are driven less by geopolitics than by expectations about the Fed's next moves, especially after the latest US CPI and PPI releases. Whereas in spring safe-haven status almost automatically supported the US currency during escalation spikes, dollar dynamics are now determined primarily by monetary policy expectations. According to the CME FedWatch tool, the probability of a rate hike at the upcoming July meeting has fallen to 12%, whereas before the inflation releases it approached 40%.

A third reason for EUR/USD's muted reaction is that market participants so far view the current escalation as a temporary phenomenon. Perhaps this is the key psychological factor. Investors are assessing not so much the exchange of strikes itself as the likelihood of further developments. As long as the base case remains a return to diplomatic channels, long-term bets on dollar strength will look risky. In that scenario the greenback is supported mainly by episodic risk-off moves and safe-haven flows, not by a sustained shift in market expectations.

That is why in recent weeks markets have shown a common pattern of response to geopolitical shocks: at first alarming news triggers dollar gains, but that impulse quickly exhausts, and traders return their attention to the "usual" agenda—macro data, Fed/ECB commentary, rate outlooks, and so on.

Yesterday is illustrative in this context. Reacting to a new flare-up in the Middle East, the pair fell impulsively by about 50 pips, reflecting broader dollar strength. Yet sellers were unable to develop the decline and close below the established range: EUR/USD remained inside the 1.14 figure, where it has traded for the fourth consecutive week.

Therefore, in my view it remains sensible to consider long positions on southern price retracements in the pair. An additional argument for that scenario is renewed talk in global media about potential prospects for a truce between Washington and Tehran. Axios reports that Donald Trump is now considering two options: a ten-day ceasefire or continuation of the conflict. According to senior sources cited by the outlet, Pakistan, Qatar, Egypt, and other mediators offered Iran and the US a 10-day halt in hostilities. The proposal envisages that during that time parties would restore navigation through the Strait of Hormuz and try to agree on long-term rules for vessel passage. Axios sources say the White House is "carefully studying" the offer. At the same time, the United States has deployed dozens of fighters and tanker aircraft to the region in preparation for a possible large-scale joint operation with Israel against Iran.

Experts disagree on the initiative's viability. Some analysts believe Washington will reject the proposal and prefer to continue to increase pressure on Tehran through military means. Others think Trump will maintain a hard line for several days in response to US casualties but then agree to consider the mediators' ceasefire proposal.

Thus, the further path of EUR/USD will largely depend on which of these scenarios unfolds. If the situation continues as a limited escalation, the pair will most likely continue to consolidate inside the established 1.1410–1.1470 range. However, if Washington and Tehran genuinely move toward a temporary truce (or begin negotiations toward a more durable ceasefire), buyers will have a chance not only to test the upper boundary of that range (i.e., 1.1470) but also to close above it and push toward the 1.15 figure.