EUR/USD rose to about 1.1730 in early European trade on Wednesday, moving above 1.1700. Markets awaited the US ADP April Employment Change report due later on Wednesday.
On Tuesday, US President Donald Trump said “great progress has been made toward a complete and final agreement with representatives of Iran”. He also said he agreed to pause “Project Freedom”, an initiative linked to moving commercial ships through the Strait of Hormuz.
Geopolitics And Risk Sentiment
Iran earlier on Tuesday introduced a new mechanism for ship transits through the Strait of Hormuz amid tensions with Washington. Traders continued to watch for further updates on a possible US-Iran ceasefire.
In Europe, markets increased expectations for a European Central Bank rate rise as early as June 2026, amid concern about sticky inflation. On Monday, Bundesbank President Joachim Nagel said the ECB may need to raise rates in June if the inflation outlook does not improve in the coming weeks.
In the US, the Federal Reserve maintained a firm stance, with no near-term signal of rate cuts.
The current environment strongly suggests positioning for further Euro strength against the US dollar. Hopes for a US-Iran deal are reducing demand for the safe-haven dollar, creating a tailwind for the EUR/USD pair. This geopolitical shift coincides with growing expectations for a European Central Bank rate hike.
Options Strategy Considerations
With Eurozone inflation for April holding at 2.8%, well above target, we see a hawkish ECB as the primary driver. Markets are now pricing in a greater than 70% chance of a rate hike in June, making long EUR call options with July expirations an attractive strategy. This would allow traders to capture any upward momentum following the central bank’s decision.
The potential de-escalation in the Strait of Hormuz is a major risk-off event being unwound, similar to what we observed back in 2015 with the initial nuclear deal negotiations. A final agreement would likely weigh on oil prices and further weaken the dollar’s appeal. Selling out-of-the-money USD calls could be a way to express this view.
Implied volatility for the currency pair has eased on the positive news, but this may be a chance to consider strategies that benefit from a potential reversal. If the talks break down, we could see a rapid flight back to the dollar. Buying cheap, short-dated EUR puts could serve as a tactical hedge against this risk over the next few weeks.
