EUR/USD pared earlier declines on Thursday, trading near 1.1655 after recovering from an intraday low of 1.1586, as a run of US releases reduced support for the US Dollar (USD) despite continuing Middle East tensions linked to the US-Iran war. The core Personal Consumption Expenditure (PCE) Price Index rose 0.2% month-on-month in April, easing from 0.3% in March, while the year-on-year rate edged up to 3.3% from 3.2%, in line with forecasts. The softer monthly print weighed on the Greenback, even as inflation remained above the Federal Reserve’s (Fed) 2% target.
The US Dollar Index (DXY) hovered around 99 after earlier touching a seven-week high of 99.54. Separate figures showed the US economy grew at an annualised 1.6% in Q1 2026, up from 0.5% previously but below the 2% advance estimate, and Initial Jobless Claims rose to 215K versus 211K expected and 210K prior; Durable Goods Orders jumped 7.9% in April after a 1.3% fall. Geopolitical uncertainty persisted, though Axios reported a preliminary 60-day truce-extension framework, pending approval by US President Donald Trump, keeping oil-related inflation risks and the restrictive policy stance of the Fed and European Central Bank (ECB) in view.
Volatility Rises as Dollar Faces Conflicting Pressures
The combination of weaker US economic growth and softer monthly inflation creates a challenging picture for the US Dollar. We are seeing implied volatility in EUR/USD options rise, with the CBOE EuroCurrency Volatility Index (EVZ) recently climbing to a three-month high of 9.2%. This suggests we should prepare for larger price movements and consider strategies that profit from increased chop.
Trading Strategies Amid Central Bank Divergence and Geopolitical Risk
Given that the monthly US inflation reading eased, we believe the Federal Reserve may be pressured to soften its hawkish stance sooner than the European Central Bank (ECB). Recent ECB commentary has remained firm, citing Eurozone wage growth that is still running above 4% year-over-year. We are therefore looking at buying EUR/USD call options with strike prices near 1.1750, expiring in late June or July, to position for further upside.
However, the US-Iran conflict is a major risk that could quickly reverse the US Dollar’s decline. Oil prices are a key indicator here, with Brent crude futures having already surged 12% in the last month to over $112 per barrel due to the tensions. To manage this risk, we are also pricing out-of-the-money EUR/USD put options to hedge against a sharp drop below the 1.1500 support level if the truce fails.
Another perspective is that these conflicting drivers—a slowing US economy versus safe-haven demand from geopolitical risk—will trap the pair in a range. Historically, EUR/USD has often consolidated for weeks after such contradictory signals emerge. This leads us to consider selling premium through strategies like an iron condor, which would be profitable if the pair remains between roughly 1.1550 and 1.1750 over the next month.
