Expectations of a US-Iran peace deal weighed on the US dollar, limiting the upside potential for the Australian dollar; the euro/AUD pair awaited direction.
2026-05-26 16:24:19
Optimism surrounding a potential peace agreement between the US and Iran put pressure on the US dollar, boosting risk appetite and causing a sharp drop in oil prices. However, traders remain cautious about another "false dawn" as no official confirmation has been made from Washington, Tehran, or Israel. Against this backdrop, the following analysis will examine the US dollar index, the Australian dollar against the US dollar, and the euro against the Australian dollar from a technical perspective.
Despite Iran's denials that a deal is imminent, markets are again betting on a close peace agreement between the US and Iran. Some social media platforms are spreading so-called "fake news," while others claim that Iran is seeking third-party assistance to remove highly enriched uranium from its territory. Monday's nearly 7% drop in oil prices did offer a glimmer of hope.
However, "false starts" surrounding the end of the conflict have become commonplace, and nothing is set in stone until the US, Iran, and Israel formally confirm the outcome.
If these rumors are proven false, Monday's market could quickly reverse, leading to a stronger dollar, weaker Wall Street sentiment, a softer Australian dollar, and renewed support for gold.
The daily chart shows that the US dollar index reached its upside target of 99.50 last week.
(US Dollar Index Daily Chart, Source: FX678)
A series of candlesticks with longer upper shadows but lower daily highs indicate waning bullish momentum. Despite a pullback on Monday, the dollar rose slightly on Tuesday. This suggests that forex traders remain ambivalent about the latest developments in US-Iran negotiations, while recognizing the presence of a hawkish Fed chairman and persistent inflationary pressures. The dollar index could still move towards 100. Just one or two pieces of news about a breakdown in negotiations could likely regain buying interest in the dollar.
The Australian dollar has experienced a relatively smooth decline against the US dollar since early May. The exchange rate began to fall from a high of around 0.7277 on May 6th, accelerating its decline after breaking below the 0.7200 level in mid-May. On May 20th, the exchange rate touched a recent low of around 0.7100 before finding support and rebounding.
(AUD/USD daily chart, source: FX678)
At the beginning of this week, driven by optimism surrounding US-Iran negotiations, market risk appetite improved, and the Australian dollar rebounded to around 0.7160 against the US dollar, recovering some of its previous losses. Previously, the Australian dollar had fallen to around 0.7100 around May 22nd, as weak Australian employment data for April (unemployment rate rising to 4.5%, with a decrease of 18,600 jobs) weighed on the Australian dollar. However, with positive signals emerging from the US-Iran negotiations, the US dollar came under pressure, giving the Australian dollar a breather. Given that the US dollar index is expected to rise towards 100 after its current correction, the upside potential for the Australian dollar against the US dollar may be limited.
If we assume the US dollar strengthens while the Australian dollar weakens, this could be a bullish signal for the euro against the Australian dollar.
(Euro/Australian Dollar Daily Chart, Source: FX678)
From the daily chart, the EUR/AUD pair is currently trading around 1.6240, consolidating at recent lows, with multiple technical indicators showing a neutral to slightly bearish signal. Since late April, the EUR/AUD pair has experienced a relatively smooth downward trend. After breaking below the 1.6600 level in mid-May, the exchange rate accelerated its decline, briefly touching a recent low of around 1.6110 on May 20th, before finding support and rebounding slightly. Currently, the price is hovering around 1.6240, in a consolidation phase after the decline.
In summary, market optimism regarding a US-Iran peace agreement has put pressure on the US dollar, but the pullback has been limited, and technical indicators suggest the dollar may still move towards 100. The Australian dollar fell from a high of 0.7277 to around 0.7100 against the US dollar, before rebounding to 0.7160 driven by optimism surrounding the US-Iran negotiations. However, with the US dollar index still targeting 100, the upside potential for the Australian dollar is limited. The euro/Australian dollar pair may see a rebound if it holds its support level. In the short term, the direction of the currency market remains highly dependent on substantial progress in the US-Iran negotiations, and traders should be wary of the risk of a market reversal due to a "false dawn."
At 15:20 Beijing time on May 26, the US dollar index was at 99.11.
Iranian peace hopes weigh on the dollar index
Despite Iran's denials that a deal is imminent, markets are again betting on a close peace agreement between the US and Iran. Some social media platforms are spreading so-called "fake news," while others claim that Iran is seeking third-party assistance to remove highly enriched uranium from its territory. Monday's nearly 7% drop in oil prices did offer a glimmer of hope.
However, "false starts" surrounding the end of the conflict have become commonplace, and nothing is set in stone until the US, Iran, and Israel formally confirm the outcome.
If these rumors are proven false, Monday's market could quickly reverse, leading to a stronger dollar, weaker Wall Street sentiment, a softer Australian dollar, and renewed support for gold.
US Dollar Index Technical Analysis: The pullback may be temporary, 100 remains the target.
The daily chart shows that the US dollar index reached its upside target of 99.50 last week.
(US Dollar Index Daily Chart, Source: FX678)
A series of candlesticks with longer upper shadows but lower daily highs indicate waning bullish momentum. Despite a pullback on Monday, the dollar rose slightly on Tuesday. This suggests that forex traders remain ambivalent about the latest developments in US-Iran negotiations, while recognizing the presence of a hawkish Fed chairman and persistent inflationary pressures. The dollar index could still move towards 100. Just one or two pieces of news about a breakdown in negotiations could likely regain buying interest in the dollar.
The Australian dollar rebounded, but the upside was limited; a stronger US dollar remained a drag on the economy.
The Australian dollar has experienced a relatively smooth decline against the US dollar since early May. The exchange rate began to fall from a high of around 0.7277 on May 6th, accelerating its decline after breaking below the 0.7200 level in mid-May. On May 20th, the exchange rate touched a recent low of around 0.7100 before finding support and rebounding.
(AUD/USD daily chart, source: FX678)
At the beginning of this week, driven by optimism surrounding US-Iran negotiations, market risk appetite improved, and the Australian dollar rebounded to around 0.7160 against the US dollar, recovering some of its previous losses. Previously, the Australian dollar had fallen to around 0.7100 around May 22nd, as weak Australian employment data for April (unemployment rate rising to 4.5%, with a decrease of 18,600 jobs) weighed on the Australian dollar. However, with positive signals emerging from the US-Iran negotiations, the US dollar came under pressure, giving the Australian dollar a breather. Given that the US dollar index is expected to rise towards 100 after its current correction, the upside potential for the Australian dollar against the US dollar may be limited.
After falling, it is consolidating at low levels, awaiting a directional move.
If we assume the US dollar strengthens while the Australian dollar weakens, this could be a bullish signal for the euro against the Australian dollar.
(Euro/Australian Dollar Daily Chart, Source: FX678)
From the daily chart, the EUR/AUD pair is currently trading around 1.6240, consolidating at recent lows, with multiple technical indicators showing a neutral to slightly bearish signal. Since late April, the EUR/AUD pair has experienced a relatively smooth downward trend. After breaking below the 1.6600 level in mid-May, the exchange rate accelerated its decline, briefly touching a recent low of around 1.6110 on May 20th, before finding support and rebounding slightly. Currently, the price is hovering around 1.6240, in a consolidation phase after the decline.
The US dollar has experienced a short-term pullback, but its upward trend remains unchanged.
In summary, market optimism regarding a US-Iran peace agreement has put pressure on the US dollar, but the pullback has been limited, and technical indicators suggest the dollar may still move towards 100. The Australian dollar fell from a high of 0.7277 to around 0.7100 against the US dollar, before rebounding to 0.7160 driven by optimism surrounding the US-Iran negotiations. However, with the US dollar index still targeting 100, the upside potential for the Australian dollar is limited. The euro/Australian dollar pair may see a rebound if it holds its support level. In the short term, the direction of the currency market remains highly dependent on substantial progress in the US-Iran negotiations, and traders should be wary of the risk of a market reversal due to a "false dawn."
At 15:20 Beijing time on May 26, the US dollar index was at 99.11.
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- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
