The Euro edged down against the US Dollar on Thursday but stayed within the recent range, trading at 1.1615. Weak Eurozone business surveys offered little support, while reports of progress towards a peace deal involving Iran limited demand for the Dollar.
Preliminary HCOB PMIs for May showed Eurozone services at a 63-month low of 46.4, down from 47.6 in April and below the 47.7 forecast. Manufacturing eased to 51.4 from 52.2, also under the 51.9 expected.
Eurozone Surveys Signal Broad Slowdown
France’s Composite PMI fell to a 66-month low of 43.5 from 47.6. Manufacturing dropped to 48.9 from 52.8, while services fell to 42.9 from 46.5, and Germany’s manufacturing and services both remained in contraction.
The data point to weaker activity after an energy shock and suggest slow GDP growth in the second quarter. They also complicate the ECB’s task as it weighs high inflation against softer growth.
In the US, the Dollar’s earlier rise stalled after President Donald Trump said the US and Iran were in the final stages of peace talks. This offset some support from the hawkish-leaning minutes of April’s Federal Reserve meeting.
Later on Thursday, US preliminary S&P Global PMIs for May are due, with manufacturing expected to slow slightly while both sectors remain in expansion.
Long Term Context For Eurusd
Looking back at this analysis, it’s a reminder of the persistent challenges the Eurozone has faced. At that time, the EUR/USD was trading near 1.16, a level we have not seen in years, with the pair currently struggling around 1.0850. The themes of weak European growth and a more resilient US economy have clearly defined the trend since then.
Those old PMI figures, showing French services contracting to 42.9 and the overall Eurozone services PMI at a 63-month low, were an early warning. Today, the situation is less dire, with the latest Eurozone Composite PMI for May 2026 at a slightly expansionary 51.5, but this is down from earlier in the year. The persistent weakness, especially compared to US PMI figures which consistently track higher, keeps a cap on the Euro’s potential.
The dilemma for the European Central Bank then is remarkably similar to the one we face now. Back then, they had to balance an energy shock and slowing growth; today, with inflation stubbornly above target at 2.8% and Q1 2026 GDP growth at a meager 0.2%, the ECB is hesitant to offer any monetary relief. This policy paralysis, which we have seen repeatedly since the period described, suggests that significant Euro strength is unlikely in the near term.
The US narrative of a hawkish Federal Reserve also proved to be the dominant long-term factor. While peace talks offered a temporary pause in US Dollar strength back then, the Fed’s aggressive rate-hiking cycle that we saw through 2022 and 2023 established a significant rate differential in the dollar’s favor. That fundamental advantage for the dollar remains largely in place today.
For derivative traders, this environment suggests volatility in the EUR/USD may be underpriced. Given the ECB’s difficult position and the fragile European data, buying straddles or strangles on the EUR/USD ahead of key inflation reports or ECB meetings could be a prudent strategy. This would position a trader to profit from a significant market move in either direction, which is plausible if the ECB is forced to act unexpectedly.
Considering the established multi-year downtrend, positioning for further Euro weakness appears to be the path of least resistance. We believe traders should consider buying EUR/USD put options with three-to-six-month expiries to capitalize on this broader theme. These positions offer a defined-risk way to bet on a continuation of US economic outperformance and European stagnation.
