EUR/USD, GBP/USD: Dollar bid returns as crude oil surges, TACO window open

• Crude oil jumps over 8% as Hormuz blockade threat reignites geopolitical risk
• USD firms, rates soften and US equity futures slide as last week’s moves unwind
• EUR/USD and GBP/USD pressured near key moving average clusters
• TACO window open with pattern of prior Monday fades

Islamabad talks collapse

Peace talks between the US and Iran in Pakistan have collapsed over the weekend, prompting Donald Trump to threaten a full blockade of the Strait of Hormuz, sending crude oil surging over 8% on the open as geopolitical risk premiums unwound last week are quickly reinstated by traders. However, this move is not unfamiliar since the Iran war began, potentially limiting the probability of a full-scale risk rout in Asia.

Talks in Islamabad between the two sides ran for roughly 21 hours before breaking down, with both nations unable to bridge gaps on what were described as “excessive” US demands, leaving the ceasefire agreed last week in limbo. Trump reverted to his well-worn playbook of escalating tensions via Truth Social, saying the US would blockade Hormuz “effective immediately”, adding the Navy would begin “BLOCKADING any and all Ships trying to enter, or leave”, before doubling down with “all in and all out” and warning vessels paying Iranian tolls would be intercepted.

TACO setup returns

Markets have responded in predictable fashion as hopes for lasting peace were crushed once again, with the USD rallying, rates softening and US equity futures gapping lower as last week’s optimism was partially unwound. However, this has an all too familiar pattern to it. Donald Trump has often escalated tensions over the weekend using social media, issuing a fixed deadline in the future that allows time for another TACO episode ahead of the reopening of US markets on Monday.

Source: TradingView

And, as seen in the chart above, we’ve frequently seen opening gaps higher in Brent crude futures on Mondays fade through the session, often sparked by direct TACO posts from Trump on social media or well-timed headlines pointing to de-escalation between the two sides. Given that pattern, it may limit the scale of carnage in risk assets today in Asia, suggesting the lows in many markets may have already been seen for the time being.

That puts EUR/USD and GBP/USD front and centre. Both are vulnerable to the rebound in crude given their reliance on imported energy. Both also sit near a cluster of key moving averages, providing traders with a zone to focus on when assessing setups to play the evolving geopolitical situation into the European session.

EUR/USD: 200DMA in focus

Source: TradingView

EUR/USD has pulled back on the open following the weekend headlines, although it remains supported at the intersection of the 200DMA and horizontal support at 1.1670, a key zone to watch through Monday’s session. While less weight should be placed on signals in a headline-driven environment, momentum indicators still marginally favour the upside, with RSI (14) holding above 50 and trending higher, while MACD has flipped positive after crossing the signal line from below several weeks ago.

Above current levels, 1.1743 is the first area of note, marking where the pair stalled last Friday ahead of Monday’s reversal. A break there would bring 1.1837 and 1.1918 into focus as potential upside targets. If the geopolitical backdrop deteriorates further, disrupting the pattern seen on prior Mondays since the war began, former triangle resistance sits just below 1.1600 today as an initial reference point, with 1.1500 and triangle support around 25 pips lower the next levels to watch.

GBP/USD: Trades beneath key moving average cluster

Source: TradingView

GBP/USD has moved below the moving average cluster on the open, finding early support at Thursday’s low just ahead of 1.3380. It’s only a minor level, but it’s the first to focus on beneath the current price, with 1.3348 next before a more pronounced support zone kicks in from 1.3200.

Above the moving average cluster, 1.3483 has capped gains consistently over the past month, making it the initial level overhead to focus on should the price push back above the cluster. 1.3575, 1.3700 and 1.3749 are other topside levels to watch.

The message from the oscillators is neutral, with RSI (14) sitting near 50 while MACD remains marginally in negative territory, meaning greater weight should be placed on price action rather than holding a specific directional bias.