EUR/USD ticked up after a gap lower, but stayed below zero and traded near 1.1760 in Asian hours on Monday. It remained subdued around 1.1750 as demand for the US Dollar rose amid renewed US–Iran tensions.
Iranian state media IRNA said Tehran refused to resume talks with US officials, citing “unrealistic expectations”. Iran has kept the Strait of Hormuz blocked since US and Israeli strikes on 28 February, briefly signalled a reopening on Friday, then reversed it on Saturday.
Rising Geopolitical Risk
US President Donald Trump said on Truth Social that US representatives would travel to Islamabad for negotiations with Iran on Monday. He also criticised the re-closure of the Strait and repeated threats to target Iranian infrastructure, including power plants and bridges.
The US Dollar also drew support from expectations that the Federal Reserve will keep rates higher for longer, linked to persistent inflation and Middle East tensions. Focus shifts to Tuesday’s US Retail Sales, forecast to rise 1.3% month-on-month in March after 0.6% in February.
The euro found some support as markets increased bets on European Central Bank rate rises this year. ECB President Christine Lagarde said higher energy costs are pushing the eurozone away from its baseline growth path, while the Strait blockade raised stagflation concerns.
We should anticipate a significant rise in market volatility given the standoff in the Strait of Hormuz. Derivative traders might consider buying options to profit from these expected price swings in currency and energy markets. Looking back from our perspective in 2025, we saw a similar spike in volatility indices during the onset of major geopolitical conflicts.
Trade Ideas And Market Positioning
The US dollar is positioned as the primary safe-haven asset in this crisis. A strong US retail sales report this Tuesday would reinforce the Fed’s ‘higher-for-longer’ stance, likely pushing the dollar even higher. This playbook reminds us of the 2022-2023 period, when persistent Fed hawkishness caused the Dollar Index (DXY) to rally to two-decade highs against other currencies.
The most direct trade relates to the disruption in energy supplies, as historically about 20% of the world’s seaborne oil has passed through the Strait of Hormuz. We should consider long positions on crude oil derivatives, such as call options on Brent futures. From our 2025 perspective, we recall how Brent crude prices jumped over 30% in just a few weeks after the energy supply shock in early 2022.
We expect the Euro to remain under pressure due to severe stagflation risks from the energy crisis. While the European Central Bank may talk about rate hikes to fight inflation, the threat of a recession will likely limit their actions. This creates a difficult divergence from the Federal Reserve, making short EUR/USD positions, such as buying puts on the pair, an attractive strategy.
