EUR/USD traded slightly lower near 1.1785 in early Asian hours on Tuesday, as markets assessed Middle East tensions before a 14-day ceasefire is due to expire on Wednesday. Germany and Eurozone ZEW surveys are due later on Tuesday, while the US March Retail Sales report is also scheduled.
US President Donald Trump said he is in no rush to end the conflict with Iran, but also said he expects new talks with Tehran in Pakistan. The comments came as the ceasefire deadline approaches.
Ceasefire Talks And Market Reaction
Iranian Parliament speaker Mohammad Bagher Ghalibaf said Iran will not accept negotiations with the US while under threat, according to the Guardian. Iranian Foreign Minister Abbas Araghchi said “continued violations of the ceasefire” by the US hinder the diplomatic process.
Uncertainty around US-Iran ceasefire discussions supported demand for the US Dollar, which weighed on EUR/USD. The pair faced headwinds as risk conditions remained unsettled.
European Central Bank officials were reported to prefer keeping interest rates unchanged at the April policy meeting. Barclays expects attention to move towards possible 25 basis point hikes in June and September, linked to an energy-driven inflation rise.
We recall this time last year, in the spring of 2025, when EUR/USD was trading near 1.18 amid uncertainty over US-Iran ceasefire talks. The market was also pricing in future rate hikes from the European Central Bank to fight a surge in energy prices. At the time, the focus was on how these two factors would drive the currency pair.
Those US-Iran ceasefire negotiations eventually stalled, creating risk-off sentiment that boosted the US Dollar through the second half of 2025. This geopolitical risk premium has become a recurring theme, causing the Cboe Volatility Index (VIX) to average over 19 for the last six months, a notable increase from prior years. The underlying tensions continue to simmer, adding a layer of uncertainty to markets.
Policy Divergence And Options Positioning
The European Central Bank did follow through with two 25 basis point hikes in 2025, but the effect has been muted by stubborn US inflation. With the latest US Consumer Price Index for March 2026 holding at 2.9%, the Federal Reserve has signaled it will hold rates higher for longer. This policy divergence has been the primary driver pushing EUR/USD down to the 1.07 handle where we see it today.
Given this environment, we see continued downward pressure on the EUR/USD pair. Traders should consider buying June 2026 put options with a strike price around 1.06 to capitalize on further dollar strength. This strategy offers a defined-risk way to position for a break of the year’s lows.
However, any sudden de-escalation in geopolitical tensions or a surprisingly weak US jobs report could cause a sharp snap-back rally. To prepare for an increase in volatility in either direction, purchasing a long straddle for May expiration could be effective. This allows a trader to profit from a significant price move, regardless of the direction.
The upcoming data on US Q1 GDP and the flash estimate for Eurozone April inflation will be critical catalysts. A robust US growth figure above the forecasted 2.1% would reinforce the bearish case for EUR/USD, making puts more attractive. Conversely, an unexpected jump in European inflation could force the ECB to adopt a more hawkish tone, benefiting call option strategies.
