Oil price surge rewriting forex trading logic! Wall Street's bearish bets on the US dollar are starting to unravel.

The foreign exchange strategy team of Wall Street financial giant JPMorgan Chase stated that with the military conflict escalating between the United States-Israel and Iran, leading to widespread disruptions in the oil and LNG transportation in the entire Middle East region, if the impact of rising oil prices continues, it will be the biggest threat to the financial institution's prediction that "the US dollar will weaken significantly this year." For many Wall Street banks like JPMorgan Chase who hold a bearish view on the US dollar, the logic behind their bearish trades is facing a major test with the heating up of oil prices - if oil prices continue to rise and surpass $100, the bearish logic for the US dollar may completely collapse. For months, JPMorgan Chase has been persistently bearish on the US dollar, favoring so-called high beta currencies such as the Australian dollar and Mexican peso - currencies that are particularly sensitive to global risk sentiment. JPMorgan Chase strategists Meera Chandan, Octavia Popescu, and Patrick Locke wrote on Monday that this stance was originally based on the assumption that the probability of "unprecedented price disruptions in the commodity markets" was low, but they now point out that this view is gradually becoming invalid. Following the US and Israel's airstrikes against Iran over the weekend, international oil prices - Brent crude and WTI crude - recorded their largest gains in four years; as Iran retaliates, this conflict has triggered significant chain reactions throughout the entire Middle East and Gulf countries. US President Donald Trump stated that the bombing against Iran could last for weeks. The JPMorgan Chase strategy team wrote: "The escalation of the military conflict between the US/Israel and Iran signals a significant risk to regional stability, and the pricing trend and reaction in the forex market is mainly reflected through the energy price channel." They predicted that higher energy prices would drive inflation significantly higher, thereby boosting the dollar and hitting other sovereign currencies including the euro and yen. Once the Strait of Hormuz risks push oil prices into the triple digits, the triple pressures of inflation, interest rates, and consumption will not only render the "buying the dip in US stocks" strategy completely ineffective, but will also result in significant losses for those betting heavily on shorting the US dollar. Although the current oil price rising to $100 is not a consensus expectation among oil analysts, this has become a significant potential risk that stock bulls are considering. If energy costs continue to soar, it will not only threaten the growth trajectory of consumer spending, but it may also reignite inflation and prompt interest rates to rise again - a scenario that played out in the financial markets on Monday in real-time: the long-standing classic safe-haven asset, US treasuries, failed to play their traditional safe-haven role during heightened geopolitical tensions, with yields surging due to fears of inflation resurgence and the Fed potentially shifting towards rate hikes due to high prices. West Texas Intermediate crude oil prices rose as much as 12% to $75.33 per barrel, and subsequently narrowed their gains to trade around $71. Brent crude oil rose 7.4% on Monday, reaching $77.85 per barrel. The Bloomberg Dollar Spot Index rose by 0.8% in Monday trading to a five-week high, alongside a rise in US Treasury yields. The euro exchange rate (euro against the dollar) fell by nearly 1% to $1.1695; the yen fell by over 1% to 157.71 yen per dollar, its weakest level in three weeks. With US President Trump's announcement of military action against Iran being "not stopping until the goal is achieved" and potentially lasting for four weeks, and with the conflict spreading beyond Iran and Israel to other Middle Eastern economies - such as Iran conducting drone and missile attacks on critical US military infrastructure in Dubai, Abu Dhabi, Bahrain, and Kuwait, Lebanon starting a new round of rocket attacks on Israel, the ongoing unpredictable geopolitical turmoil in the Middle East and the potential ripple effects of rising oil prices have given fund managers new reasons to sell risky assets such as stocks on a large scale, and instead seek further refuge in traditional safe-haven assets like gold, the dollar, and commodities like oil that will benefit greatly from the geopolitical turmoil in the Middle East. JPMorgan Chase noted four distinct trends related to differentiation in the currency market based on energy imports and exports, including: As the United States has become a net oil exporter, the US dollar will benefit against all currencies, and JPMorgan Chase emphasized that "any further actions that support unwinding of short US dollar positions may provide additional tactical support for the dollar." Currencies of other oil-exporting countries, such as the Norwegian krone, and more broadly, commodity currencies, will also receive support. Currencies of oil-importing countries, such as the euro, Polish zloty, Czech koruna, and Hungarian forint, may see the largest declines, followed by core Asian sovereign currencies. Safe-haven currencies will show differentiation, with the Japanese yen under pressure, the Swiss franc possibly performing relatively well, and gold being a clear net beneficiary. Iraq quagmire or "Venezuela model"? "The problem the market currently faces is: is this a long-term regime change operation, similar to the post-2003 US invasion of Iraq that may lead to a political struggle and quagmire situation? Or is it a short-term geopolitical shock similar to Venezuela aimed at forcing the remaining leadership in Iran to reach an agreement? If diplomacy restarts quickly, and Iran avoids attacking core energy infrastructure and shipping in the Middle East, the initial risk aversion sentiment is likely to dissipate. If the conflict persists and pulls energy production and export infrastructure into it, then the market must reprice oil prices, interest rates, and foreign exchange in an environment of higher volatility, and the stock market may have to pay a significant price for stagflation trends," said Bloomberg strategist Michael Ball. With oil and LNG shipping nearly stagnant in the Strait of Hormuz, and a major refinery in Saudi Arabia facing production interruptions, the energy market has been severely impacted on the supply side, leading to a sharp rise in oil prices. If the Strait of Hormuz remains closed for an extended period affecting oil and gas transport routes, some Wall Street analysts have already included the $100 oil price level in their financial forecasts. The JPMorgan Chase foreign exchange strategy team advised traders to unwind or close their long positions on the euro. They stated that if energy prices continue to rise, the euro could fall to the range of $1.10 to $1.13, close to levels seen a year ago, although this is not their base case scenario. The strategists wrote that once the outcome of the oil market becomes clearer, they will look for opportunities to re-establish long positions on the euro. Nevertheless, these foreign exchange strategists from JPMorgan Chase still maintain their bearish positions on the US dollar against currencies like the Australian dollar and Norwegian krone, as these currencies are in a good position to benefit from the potential trend of higher energy prices, relative trade conditions, and economic growth potential; however, they have tightened the stop-loss levels of these positions to protect their profits.