EUR/USD fell below 1.1750 on Tuesday after failing near 1.1790 on Monday. Demand for the US Dollar rose as concern grew about the US-Iran ceasefire.
Comments from US President Donald Trump described the ceasefire as on “life support”. CNN reported, citing aides, that the US president may consider renewed combat operations.
The US Consumer Price Index (CPI) is due later on Tuesday. Headline inflation is forecast at 3.7% year-on-year in April, the highest since September 2023, while core CPI is seen at 2.7% year-on-year, up from 2.6% in March.
In the Eurozone, the ZEW Economic Sentiment Index for Germany improved to -10.2 in May from -17.2 in April, versus a forecast of -19.8. The current situation measure fell to -77.8 from -73.7, below the -77.5 consensus.
On the 4-hour chart, momentum has turned lower, with RSI near 47 and MACD slightly below zero. Support levels are 1.1725 and 1.1645–1.1675, while resistance is 1.1790–1.1800 and 1.1850.
Looking back at this time in 2025, we remember how fears over the US-Iran ceasefire breaking down pushed EUR/USD below 1.1750. The market was bracing for a high inflation print, which was seen as a direct result of the conflict boosting energy prices. This safe-haven demand for the US Dollar was the dominant theme.
One year later, the landscape has shifted significantly. That period of geopolitical tension did indeed keep inflation sticky, prompting the Federal Reserve to hold rates higher for longer throughout the second half of 2025, which sent the pair tumbling. Today, with EUR/USD trading near 1.1150, the immediate threat of conflict has faded, but the economic consequences are still our primary focus.
The most recent US CPI data for April 2026 showed inflation has cooled to 2.9%, a notable drop from the 3.7% peak we saw after the 2025 Mideast tensions. However, this is still stubbornly above the Fed’s target, creating uncertainty about the timing of any policy pivot. Current pricing from the CME FedWatch Tool suggests the market is now betting on a 60% probability of a first rate cut by the fourth quarter of this year, a timeline that keeps shifting.
Meanwhile, the situation in the Eurozone provides a stark contrast, as recent data showed regional GDP growth for the first quarter of 2026 was a sluggish 0.2%. Comments from European Central Bank officials last week hinted that they are more concerned with stimulating growth than fighting the last remnants of inflation. This divergence in central bank outlook is weighing heavily on the Euro.
Given this context, we see value in strategies that position for further downside or limited upside in EUR/USD. Buying puts with a strike price around 1.1000 expiring in the next six to eight weeks could offer a cost-effective way to hedge against a drop driven by central bank divergence. This move allows for participation in a downward trend while clearly defining the maximum risk.
The uncertainty around the timing of Fed cuts versus potential ECB action is keeping option volatility elevated. The Cboe EuroCurrency Volatility Index (EVZ) is currently hovering around 8.5, higher than its pre-2025 average, reflecting the market’s nervousness. This makes selling out-of-the-money call options to fund put purchases an attractive structure for some traders looking to cheapen their downside protection.
