EUR/USD traded higher near 1.1805 in early Asian deals on Thursday. The euro rose against the dollar as risk appetite improved after optimism about a US–Iran ceasefire.
Market participants moved into higher-risk assets on expectations of further US–Iran talks. The Associated Press said on Wednesday that both countries were closer to extending the ceasefire and restarting negotiations on a longer-term peace deal, while tensions continued around the Strait of Hormuz.
Lower oil prices were linked to reduced inflation worries. This came as risk appetite improved alongside signs of easing conflict in the Middle East.
At the European Central Bank, policymakers were leaning towards leaving interest rates unchanged at the April meeting. ECB President Christine Lagarde said the bank must be “completely agile” on rates and said it does not have a bias towards raising them.
Market pricing still pointed to tighter policy later this year. Traders expected two quarter-point rate rises in 2025.
We recall the optimism back in 2025 when a US-Iran ceasefire boosted risk appetite and helped lift the euro above 1.18. That environment of de-escalation feels distant now as we see renewed geopolitical frictions emerging. This shift suggests that the tailwinds that supported the single currency have reversed.
While traders in 2025 correctly anticipated rate hikes from the European Central Bank, the landscape has now changed dramatically. Recent Eurostat figures peg March 2026 inflation at just 2.1%, down significantly and bringing the ECB’s hiking cycle to a definitive end. The derivatives market is now pricing in a 60% chance of a rate cut by the fourth quarter of this year.
The economic divergence between the blocs is also becoming more pronounced, supporting a stronger dollar. Last week’s US Non-Farm Payrolls report for March 2026 beat expectations, adding 235,000 jobs and reinforcing the Federal Reserve’s “higher for longer” stance. In contrast, Germany’s latest industrial production figures showed a contraction, signaling a slowdown in the bloc’s largest economy.
Given this backdrop, we should consider positioning for potential EUR/USD downside in the weeks ahead. Buying put options on the euro could offer a defined-risk way to capitalize on a move lower, especially if we break below the 1.2150 support level. With geopolitical tensions rising again, we should also anticipate an increase in currency volatility.
