EUR/USD edged lower to near 1.1750 in early Asian trading on Wednesday. The Euro weakened against the US Dollar amid the US-Iran conflict and uncertainty over a possible Strait of Hormuz blockade.
US President Donald Trump said late Tuesday that he would extend a ceasefire with Iran indefinitely. The ceasefire had been due to expire the next day, while plans for fresh negotiations between the two countries collapsed.
An aide to Iran’s top negotiator said the move was a “ploy to buy time”. Iran’s military warned of a powerful attack on predetermined targets, citing repeated threats by Trump.
Ongoing uncertainty around US-Iran talks may support demand for the US Dollar as a safe-haven currency. This could keep pressure on EUR/USD in the near term.
Markets are watching preliminary HCOB Purchasing Managers’ Index (PMI) readings from the Eurozone and Germany, due on Thursday. US S&P Global PMI data for April is also scheduled for release on Thursday.
Looking back at this time in 2025, we saw the EUR/USD pair under pressure near 1.1750 due to geopolitical tensions in the Middle East. That event served as a reminder of the US dollar’s status as a primary safe-haven asset during global uncertainty. The market’s focus at that point was on short-term risk, which temporarily overshadowed economic data.
The landscape has changed significantly over the past year. Those specific geopolitical risks have faded, and the market’s attention has pivoted to the starkly different economic paths of the US and the Eurozone. For instance, the US economy posted a resilient 2.1% annualized growth in the first quarter of 2026, while the Eurozone’s economy expanded by a mere 0.5% in the same period.
This economic divergence is now heavily influencing central bank policy and interest rate expectations. The US Federal Reserve is signaling it will hold rates higher for longer to combat persistent services inflation, especially after the latest jobs report showed a robust 260,000 positions added last month. In contrast, weaker inflation figures in the Eurozone have the European Central Bank openly discussing potential rate cuts before the end of the summer.
Given the current EUR/USD spot price around 1.0720, we should consider buying put options expiring in the next two to three months. This strategy allows us to profit from a continued decline in the pair, driven by the widening interest rate differential between the US and Europe. The next major technical support level we are watching is near 1.0600.
Furthermore, implied volatility in the currency markets is much lower now than during the geopolitical flare-up in 2025. The Cboe EuroCurrency Volatility Index (EVZ) is currently hovering near 5.8, a significant drop from the levels above 9 we saw during last year’s tensions. This low-volatility environment makes strategies like selling out-of-the-money call spreads on the EUR/USD attractive for earning premium while maintaining a bearish outlook.
We must remain vigilant for upcoming data releases that could alter this view. The next US Core PCE inflation report will be critical, as a higher-than-expected number would reinforce the Fed’s hawkish stance and likely accelerate the Euro’s decline. Conversely, any sudden signs of weakness in the US labor market could provide temporary relief for the shared currency.
