In addition to the hot news on an already busy trading day, Iran finally reached a nuclear deal with six major powers after years of talks on Tuesday, which sent oil prices lower. This is exactly what we were seeing coming, because hopes of sanctions being lifted off, will enable Iran to directly sell its oil to the West. If you were paying attention during my Supply and Demand lesson, you should know that oversupply of oil will push its price lower.
And who is the first target of oil prices at the major currency pairs party? Yes, it is the US dollar aka Ms. USA. Lower oil prices lead to higher USD.
As for the Iranian Rial (IRR,) while you still can’t trade it on the global retail forex market, it is good to know that this news is expected to strengthen the highly depreciated Iranian currency against its major counterparts especially the US dollar, which could give a sense of relief among Iranian people, and possibly even some major investing opportunities for westerners.
President Obama delivered an interesting speech this morning, logically explaining the benefits of this deal with Iran, saying the deal “is not to build trust, it is to build verification.”
However there are some nations including Israel and Saudi Arabia who strongly object this deal, which could result in more tensions in the region and additional oil price slump. Politically, this could be a tough call because these countries believe lifting the sanctions will give the Iranian regime a free pass to build nuclear weapons. On the other hand, the driving force behind this deal to me seems to be Iran and America’s common enemy: ISIS.
I really like how President Obama put matters into perspective as he said: “We give up nothing by testing whether or not this problem can be solved peacefully,” and that if things don’t work out, him or any other US President after him will have a stronger position to take an action against Iran. So seriously, what’s the harm of doing it now, right?
Anyways, gear up for more US dollar strength because this news combined with the potential interest rate hike in September could do wonders on the forex dance floor, despite the US retail sales number coming in lower than expected in the month of June.