Renewed optimism around a possible US-Iran agreement has underpinned the euro, pushing EUR/USD back towards 1.1600. The move comes as markets weigh how a deal that reopens the Strait of Hormuz could ease energy price pressures, a factor that has been a headwind for the single currency.
The European Central Bank has delivered its first rate rise in response to the energy shock, but it stopped short of signalling consecutive hikes in June and July and kept open the option of holding policy steady if conditions improve. Pricing for another increase as soon as next month has fallen below 50:50, and the pair is still seen trading within the 1.1400–1.1800 range that has held over the past year.
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Support for the Euro Amid US-Iran Deal Optimism and ECB Policy
We are seeing renewed optimism surrounding a potential US-Iran deal, which is currently supporting the Euro. This has pushed the EUR/USD exchange rate back up near the 1.1600 mark. The market appears to be settling into the broad 1.1400 to 1.1800 range that has defined trading for the past year.
The European Central Bank’s cautious stance on future interest rate hikes further reinforces this range-bound view. After an initial hike, recent Eurozone inflation data from May 2026 showed a slight cooling to 2.5%, reducing the pressure for another immediate rate increase in July. Consequently, the probability of a hike at the next meeting has now dropped below 50%.
The key driver for this stability is the prospect of a deal that reopens the Strait of Hormuz, through which about a fifth of the world’s daily oil supply travels. An agreement would ease the energy shock on the European economy, which relies heavily on energy imports. This reduces the downside risk for the Euro and supports the currency staying within its current channel.
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Volatility Strategies in a Stable EUR/USD Environment
For the coming weeks, we believe the most effective strategy is to sell volatility on the EUR/USD pair. An iron condor, with short strikes placed safely outside the 1.1400 to 1.1800 range, would allow traders to profit from the passage of time and low volatility. This strategy is designed to benefit from the pair remaining stable as these events unfold.
This approach is supported by current options pricing, where one-month implied volatility for EUR/USD has fallen to a modest 6.0%. Historically, such levels indicate that the market is not anticipating a significant breakout in either direction. We see this as a favorable environment for collecting premium while the market digests the geopolitical and central bank news.
