EUR/USD traded lower near 1.1615 in early Asian trading on Monday, with the euro weakening amid an extended US–Iran conflict that weighed on risk assets. Markets are waiting for preliminary PMI data from the Eurozone and the US, due on Thursday.
Iranian media said on Sunday that the US response to Tehran’s latest proposals did not include concrete concessions. Fars reported that the US set five conditions for a peace deal, including removing uranium tied to Iran’s nuclear programme to the US, no US reparations to Tehran, and unfreezing less than a quarter of Iran’s suspended assets.
Us Iran Tensions Lift The Dollar
US President Donald Trump said on Sunday that Iran should “get moving”, or face further consequences. The tensions supported the US dollar as a safe-haven currency, adding pressure to EUR/USD.
In Europe, ECB policymakers pointed to an interest rate rise to address persistent inflation expectations. In a Reuters poll, about 85% of economists expected the ECB to raise the deposit rate by 25 bps to 2.25% in June, compared with just over half holding that view before the April meeting.
Looking back to this time in 2025, we saw the Euro under pressure from US-Iran tensions, pushing EUR/USD towards 1.1600. The US dollar was benefiting from its safe-haven status during that period of uncertainty. This created a challenging environment where geopolitical news could quickly outweigh central bank signals.
However, the European Central Bank’s policy path proved to be the more dominant driver through the second half of 2025. As we saw, the ECB did deliver that 25 basis point hike in June 2025 and continued tightening to a peak of 3.00% by year-end to fight persistent inflation. That sustained hawkishness provided a strong floor for the currency, which eventually overpowered the geopolitical noise.
Options Strategies In A Higher Eur Usd Regime
Today, with EUR/USD trading much higher around 1.2150, the lesson from last year is to focus on central bank divergence. With Eurozone core inflation still proving sticky at 3.5%, traders might consider buying call options on the Euro, anticipating that the ECB will be forced to hold rates higher for longer than the US Federal Reserve. This strategy positions for further upside in the pair while limiting downside risk.
The easing of US-Iran tensions in early 2026 removed a key headwind, but geopolitical risk can re-emerge quickly. Given this, selling short-dated EUR/USD put options could be a viable strategy to collect premium, assuming the pair’s uptrend holds on the back of favorable interest rate differentials. Implied volatility for EUR/USD options has fallen to a 12-month low of 5.8%, making strategies that sell volatility more attractive.
In the coming weeks, we should closely watch the upcoming Eurozone CPI flash estimate, as any upside surprise could reinforce the ECB’s hawkish stance. Conversely, softer US labor market data, like the slight uptick in jobless claims we saw last week to 235,000, could accelerate expectations of a Fed rate cut. This dynamic suggests that option spreads, such as bull call spreads, could offer a cost-effective way to trade a continued, steady rise in EUR/USD.
