12.05.202601:08 Forex Analysis & Reviews: Oil May Fall to $85-90 per Barrel

Despite the significant gap between the agreement between Iran and the US, markets continue to hope for the best. In my opinion, the most positive fact is the absence of a full-scale war in the Middle East. As long as there is no war, there is a chance for a peaceful agreement. Major commercial banks also acknowledge that a peace agreement may be signed in the coming months. For instance, Deutsche Bank has stated that they expect the basic scenario to materialize, which involves maintaining a ceasefire regime. This means that Deutsche Bank analysts do not anticipate Iran and the US signing a ceasefire agreement, reaching a nuclear deal, or even signing a memorandum of understanding. They are leaning towards the view that war will not resume, and in this case, oil prices could drop to $85-90 per barrel.

I believe this is a feasible scenario, as the world has been learning to cope without Middle Eastern oil for several months. It is clear that a 20% shortfall cannot be offset in just a few weeks. However, oil is produced not only in Middle Eastern countries. For example, the US has increased its oil and gas export volumes in the last two months, and Russia is also selling significantly more energy resources now than before the war. Therefore, sooner or later, supply will fully recover even without the complete resolution of the conflict in the Middle East.

Deutsche Bank also stated that they estimate the probability of this forecast being fulfilled at 60%. The bank's analysts noted that neither Iran nor the US has interpreted the recent strikes in the Persian Gulf as a signal to end the ceasefire. Donald Trump even referred to the recent US strikes against Iran as a "friendly pat on the back."

However, another, more pessimistic scenario exists. The Strait of Hormuz may remain blockaded until the end of the year, and the world will not be able to fully offset the "Middle Eastern deficit." In this case, one should expect prices to rise to $150 per barrel and remain at these levels for an extended period. Undoubtedly, the global economy would respond with strong inflation growth and its own slowdown. Some countries may face a full recession. Central banks would have to adjust their monetary policy plans.

Wave Picture for EUR/USD:

Based on the conducted analysis of EUR/USD, I conclude that the instrument remains within a bullish segment of the trend (see the lower chart), and in the short term, it falls within a corrective structure. The corrective wave setup appears to be quite complete and may take on a more complex, elongated form. The geopolitical situation in the Middle East continues to improve, which is driving buyers' optimism. I expect the instrument to continue rising with targets near the 19th figure.

Wave Picture for GBP/USD:

The wave structure of the GBP/USD instrument has become clearer over time, as I anticipated. We now see a clear five-wave upward structure on the charts, which may be completed soon. If this is indeed the case, we can expect a corrective wave setup to form after the completion of wave 5. Wave 5 may finish around the 1.3699 mark, corresponding to 76.4% on the Fibonacci scale. If geopolitics continues to move towards long-term peace, the bullish segment of the trend may take on a more extended form. Thus, the combination of waves and geopolitical developments will determine the pound's fate in the coming weeks.

Key Principles of My Analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to act on and often undergo changes.
2. If there is no confidence in what is happening in the market, it is better not to enter it.
3. There can never be 100% certainty in the direction of movement. Do not forget about protective stop-loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.