EUR/USD drew dip-buying in Asia on Thursday, after pulling back late on Wednesday from near 1.1800, a level last seen more than two weeks ago. It traded just above the mid-1.1700s, up nearly 0.10% on the day, with moves led by the US Dollar.
The US Dollar stayed weak for a second day, despite a bounce after US jobs data. ADP reported private-sector employment rose by 109K in April, following a downwardly revised 61K in the prior month.
Us Iran Deal Headlines
Price action was also linked to talk of progress towards a US-Iran deal. Donald Trump said talks advanced over the past 24 hours and that Iran wants a deal, while Axios cited two US officials saying the White House was nearing a one-page memorandum of understanding.
Expectations for a more hawkish Federal Reserve have eased, although the CME Group’s CME FedWatch Tool still shows markets pricing a possible Fed rate hike by year-end. Doubts also remain due to disagreements over Iran’s nuclear programme, which can support the dollar.
Traders are watching German Factory Orders, the French Trade Balance, US Challenger Job Cuts, and US Weekly Initial Jobless Claims. Attention then turns to Friday’s US Nonfarm Payrolls, alongside further Middle East updates.
Looking back at the market sentiment in early May 2025, we saw the EUR/USD pair pushing towards 1.1800 based on hopes for a US-Iran peace deal, which was weakening the dollar. This optimism was clashing with underlying US economic data and the chance of a Federal Reserve rate hike later that year. The key was to treat this as a news-driven event with high uncertainty, making options a smarter play than trading the spot currency.
Volatility And Positioning
The implied volatility in EUR/USD options at that time reflected this tension, with one-month volatility ticking up from around 6% to over 8% in just a few days. Historically, such spikes precede significant price moves, as the market braces for a binary outcome. The CME FedWatch tool then showed rate hike odds for late 2025 dropping below 50%, highlighting how geopolitical news was temporarily overshadowing economic fundamentals.
Given the upcoming US Nonfarm Payrolls (NFP) report, the ideal strategy was to position for a large move in either direction. Buying a straddle, which is a call and a put option with the same strike price and expiry, would have been the correct response. This trade was designed to profit whether the Iran deal materialized and sent the dollar tumbling, or if a strong jobs report caused a sharp dollar rebound.
As we now know, the NFP figure released in May 2025 came in stronger than anticipated at over 210,000, while the Iran negotiations stalled over the following weeks. This combination caused the US dollar to reverse course and strengthen, sending the EUR/USD pair back towards the 1.1600 level. Traders who had positioned for volatility using a straddle would have profited from this sharp reversal as the market’s focus snapped back to Fed policy.
