One Hand Shakes, the Other Strikes

May 26, 2026

Elias Haddad

US hits Iranian targets as peace talks continue. Crude oil prices and USD retrace part of yesterday’s pullback.

US weekly ADP employment and consumer confidence up next.

Hungary central bank poised to keep rates on hold. Euro-convergence trade benefiting HUF.

Check-out our Drivers for the Week Ahead for all the key market shaping themes.

President Donald Trump said on Sunday “Our relationship with Iran is becoming a much more professional and productive one.” On Monday, US forces conducted self-defense strikes on Iranian missile launch sites and boats. Regardless, risk sentiment should remain supported because both sides are working out a deal that would extend the ceasefire by 60 days and reopen the Strait of Hormuz.

We are sticking to our view the dollar index (DXY) risk overshooting the upper end of its nearly one year 96.00-100.00 range in the near term. Resilient US economic activity in both absolute and relative terms outweigh the drag to USD from a potential improvement in sentiment tied to the Iran war.

May Conference Board Consumer Confidence index is today’s data highlight (3:00pm London, 10:00am New York). Pay attention to the job demand subindexes for more evidence the labor market is stabilizing. ADP employment change for the week ending May 9 will also be worth monitoring (1:15pm London, 8:15am New York).

EUROZONE

EUR/USD is consolidating above 1.1600 and faces immediate resistance at 1.1682. the 200-day moving average. ECB Executive Board member Isabel Schnabel signals June hike bias. Schnabel said “Given the size and the persistence of the current shock, looking through is no longer an option in my view…From today’s perspective, I think a rate hike in June will be needed.”

The swaps curve implies nearly 90% odds of a 25bps ECB rate hike to 2.25% at the June 11 meeting. Rate hikes in a low growth, high inflation environment, is not bullish for EUR but should help cushion the downside. We see room for EUR/USD to edge lower towards support at 1.1400, reflecting a stronger US growth outlook relative to the Eurozone.

JAPAN

USD/JPY is trading in a tight range around 159.00 and should hold under 160.00 due to threat of currency intervention. The Bank of Japan (BOJ) April underlying CPI indicators were soft and underscores the bank’s gradual normalization path. Trimmed mean, weighted median, mode inflation and core CPI excluding institutional factors have eased further below the BOJ’s 2% target. The swaps curve still price in 75% odds of a 25bps BOJ rate hike to 1.00% at the next June 16 meeting.

The Japanese government approved an extra budget to fund emergency energy relief measures worth around ¥3 trillion (0.4% of GDP). The government plans to finance the extra budget without increasing bond issuance due to higher-than-expected tax revenue and other unused spending.

HUNGARY

HUF is the second best performing major currency versus USD (ILS tops the ranking) since Hungary’s mid-April election that ended Victor Orban’s rule. National Bank of Hungary is widely expected to keep rates steady at 6.25% for a third consecutive meeting (1:00pm London, 8:00am New York). The euro-convergence trade will continue to be an important structural tailwind for HUF. Hungary’s new government plans to meet euro adoption conditions by 2030.

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