TACO risks are heating up, but not yet imminent

Overview

This is a Nomura Asia FX strategy chart alert focused on the escalation of the US-Iran conflict, rising oil and gas prices, and the resulting Trump "TACO" risk. The report points out that the TACO indicator has risen from around 0 standard deviations on July 6 to 2.0 standard deviations currently, indicating rising market pressure; however, the authors also judge that the risk is not immediate.

Core views

The core view is that TACO risk is rising, but it is not yet imminent. Deterioration in the Middle East situation and rising energy prices are increasing the pressure on Trump to retreat on policy, but Trump has still not backed away from his threats regarding possible attacks on Iranian power plants and bridges. If oil and gas prices continue to move up rapidly, the indicator could approach a higher-pressure range.

Analysis framework

The report uses Nomura's proprietary TACO indicator rolling Z-score framework to map changes in market variables such as oil and gas prices into quantitative signals of pressure on Trump to back down, combined with the timeline of US-Iran conflict events for macro judgment.

Methodology notes

• Macro risk indicatorTACO indicator (Rolling Z-score)

  Quantification of TACO pressure

  The report uses a rolling Z-score to measure TACO risk pressure. The current indicator has risen to 2.0 standard deviations; the authors estimate that if oil and gas prices rise 10% immediately, the indicator would climb to about 3.2 standard deviations.

• Event-driven analysisGeopolitical event-chain analysis

  Transmission from Middle East conflict to energy prices

  The report links events since July 7, including renewed attacks between the US and Iran, abandonment of the ceasefire MOU, and the de facto closure of the Strait of Hormuz, with rising oil and gas prices and risk sentiment in Asia FX.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Asia ex-Japan FX

  Affected by the Middle East conflict, oil and gas prices, and USD risk sentiment

  Strengths

  The report provides a quantitative indicator to help track short-term risk pressure.

  Weaknesses

  It does not provide specific currency-pair trading recommendations or target levels.

  Comparison

  Compared with company fundamental research, this report is more focused on short-term macro charts and event-driven judgment.

  Risks

  Continued increases in energy prices, escalation of Strait of Hormuz risks, and expansion of the US-Iran conflict.

• Oil and gas prices

  The main driving variables behind the rise in the TACO indicator

  Strengths

  Changes in energy prices provide a direct and observable signal of risk pressure.

  Weaknesses

  There is uncertainty in how price shocks transmit to FX and policy responses.

  Comparison

  The report assumes that an immediate 10% rise in oil and gas prices would push the indicator up to about 3.2sd.

  Risks

  If the conflict escalates and causes supply disruptions, oil and gas prices could further intensify macro pressure.

• Fixed income/rates market

  The report discloses its fixed income strategy methodology, and macro risks may affect yields and risk sentiment

  Strengths

  Market reactions can be observed through both tactical and strategic trading frameworks.

  Weaknesses

  The main text does not offer specific fixed income trading recommendations.

  Comparison

  The disclosure section explains that fixed income recommendations can be divided into tactical views within three months and strategic views over a longer horizon.

  Risks

  Geopolitical risks, energy inflation, and policy uncertainty may alter rate pricing.

Key data

• Report date2026-07-20Both the report header and metadata show 20 July 2026.
• Current TACO indicator level2.0 standard deviationsThe report says the TACO indicator has risen to a recent high of 2.0sd.
• Starting point of the TACO indicator~0 standard deviations on 6 JulyThe report says the indicator rose from around 0sd on July 6 to the current level.
• Source of pressureRising oil and natural gas pricesThe report explicitly states that recent increases in oil and gas prices are the main driver of the rise in the TACO indicator.
• Scenario estimateAn immediate 10% rise in oil and gas prices would lift the indicator to about 3.2sdAn estimate assuming other conditions remain unchanged.
• Ceasefire MOU date2026-06-17The report says the US and Iran signed a ceasefire MOU on June 17.
• Timing of renewed conflict escalationStarting from 2026-07-07The report says that from July 7, the US and Iran resumed attacking each other in the Middle East.

Impact & implications

In terms of investment implications, Asia FX and fixed income markets need to monitor the linkage among energy prices, geopolitical conflict, and US policy signaling. If oil and gas prices continue to rise, the TACO indicator may move higher still, increasing market concerns about risk assets, currencies of energy-importing countries, and volatility in Asia FX.

Risks

• Further escalation of the US-Iran conflict.
• Closure of the Strait of Hormuz or restricted passage leading to higher energy supply risks.
• Continued increases in oil and natural gas prices, pushing the TACO indicator even higher.
• Rapid shifts between Trump's policy rhetoric and actual actions.
• The report does not provide specific trading recommendations, and interpretation of the indicator needs to be validated against real-time market prices.

What to watch

• Whether the TACO indicator continues rising from 2.0sd toward about 3.2sd or higher.
• Whether oil and natural gas prices experience an additional rapid rise of around 10%.
• Whether the US and Iran restore or abandon arrangements related to the ceasefire MOU.
• Trump's follow-up statements and actions regarding targets such as Iranian power plants and bridges.
• The passage status of the Strait of Hormuz and risks to energy transportation.
• The reaction of major Asia ex-Japan currency pairs to energy shocks and risk sentiment.