EUR/USD slipped from an intraday high near 1.1778 to about 1.1748 as renewed Strait of Hormuz worries lifted the US Dollar and Oil prices. The US Dollar Index (DXY) rebounded towards 98.00 after falling to near pre-war levels earlier in the week.
Markets turned cautious after reports that the US may restart “Project Freedom” to help unblock the Strait of Hormuz, citing US officials via The Wall Street Journal. A US official later told Al Jazeera that preparations to resume the operation were not under way.
Geopolitical And Shipping Risk
CNN reported that Tehran has issued new requirements for ships using the strait, based on a document it said it had seen. The “Vessel Information Declaration” from Iran’s new Persian Gulf Strait Authority (PGSA) must be completed by all passing vessels, and possible transit fees remain unclear after earlier reports of about $2 million per passage.
The moves come as reports say the US and Iran are nearing an agreement to end the war, with Iran reviewing a US-backed proposal and expected to reply via Pakistani mediators in the coming days. Energy uncertainty has kept Oil prices elevated, adding inflation risks and affecting central bank policy.
Boston Fed President Susan Collins said rates may need to stay on hold “for a longer period” and that “the odds of a worse inflation scenario have increased”. ECB policymaker Isabel Schnabel said policy may need to tighten if the energy shock spreads, aiming to restore inflation to 2%.
We remember how the Hormuz tensions back in 2025 kept oil prices elevated and central banks on high alert. This created a strong dollar environment, pinning the EUR/USD below 1.18 for months. Today, with the diplomatic situation more stable, the market has shifted its focus to central bank divergence.
While WTI crude peaked near $115 per barrel during the crisis last year, it has now stabilized in the $85-$90 range as of early May 2026. Consequently, headline inflation has cooled significantly, with the latest US CPI print for April coming in at 3.4%, a stark contrast to the 7.5% highs we saw in 2025. This fundamental shift has reduced the pressure on the Federal Reserve.
Trade Ideas And Positioning
With geopolitical risks now perceived as a background threat rather than an immediate crisis, implied volatility on crude oil options has compressed. This presents an opportunity to purchase cheap, out-of-the-money call options on Brent or WTI futures for the coming months. Any unexpected escalation near the Strait of Hormuz would cause a rapid repricing of this risk.
Last year’s focus was on a strong dollar, with the DXY index consistently above 98.00 as the Fed maintained its hawkish stance. We are now seeing a reversal, with the DXY trading closer to 94.50 as the market prices in potential Fed rate cuts before year-end. This is happening while the ECB remains hesitant to signal a clear easing path.
This weakening dollar backdrop makes long positions on EUR/USD attractive, a pair now trading near 1.22. We should consider buying EUR/USD call spreads targeting a move toward the 1.24 level in the next one to two months. The strategy benefits from the Fed’s dovish pivot outpacing that of the European Central Bank.
