The situation in the Middle East has sharply escalated in recent days — the most serious test of the April truce since it was signed.

Israel struck southern suburbs of Beirut again. Iran responded with missile strikes on Israeli territory for the first time since April, after which Israel attacked military targets inside Iran — explosions were reported in Tehran, Isfahan, Tabriz, and Karaj. The ceasefire is effectively coming apart. Yet President Trump continues to claim some progress.

Media reports show that Trump called Netanyahu ahead of the strikes, urging him not to derail talks with Tehran, but he was not heeded. After the strikes took place, the US president said they must not wreck the peace process and expressed hope that Israel would refrain from further retaliation, warning of the risk of a multi-year escalation. That is an important signal: Washington is trying to keep the diplomatic track alive but is clearly losing influence over its ally's actions.

Tehran, for its part, called US actions a breach of the truce and placed responsibility for any further escalation on Washington. Iranian parliament speaker Ghalibaf went further, declaring that American military bases in the region are becoming "legitimate targets" because of their support for Israel. That is a direct threat the market cannot ignore — bases in Kuwait, Bahrain, Qatar, and the UAE would be at risk, that is, in immediate proximity to the Strait of Hormuz.

Note that the Lebanon track has become the conduit through which the war is broadening. Iran insists that the ceasefire in Lebanon must be included in any overall deal with the US, while Israel continues operations and does not consider itself bound by any US-Iran understandings. Meanwhile, the Gaza campaign continues, and Egypt is conducting a new round of talks with Hamas — the conflict is unfolding on multiple fronts simultaneously.

With this level of escalation, the threat of a new full shutdown of the strait becomes real again — a scenario oil markets have long tried not to price in. If Iranian threats against US bases materialize and the US responds with strikes on Iranian territory beyond the current scope of the conflict, oil prices could spike sharply, as could demand for the US dollar as a safe haven.

From a technical perspective, EUR/USD buyers need to focus on clearing 1.1540. Only that would set up a test of 1.1560. From there, a move to 1.1580 is possible, though advancing further without support from large players would be difficult. The more distant target would be the 1.1600 high. On the downside, I would expect substantial buying interest only around 1.1505. In case of muted buying activity there, it would be preferable to wait for a decline to a fresh low at 1.1480 or consider long entries at 1.1445.

Regarding the GBP/USD pair, the immediate task of buyers is to overcome the resistance level of 1.3345. That would open the way to 1.3375. Breaking above that level would be challenging, and the next target would be the 1.3410 area. In the event of a decline, bears will try to seize control at 1.3315. If they succeed, a break below that level would deal a severe blow to bulls and push sterling toward 1.3290 with a prospect of extending down to 1.3255.