EUR\/USD failed to capitalise on a supportive mix of European Central Bank rhetoric and softer US labour signals, and instead slid from an early high just shy of 1.1450 to a 1.1406 close, its weakest finish since last Wednesday. Market pricing still leans towards one further quarter-point ECB hike this year, while assigning almost nothing to the 23 July meeting. In the US, the four-week average of ADP employment change eased to 21,000 from 24,250, but the New York Fed chief added little new, leaving traders focused on Wednesday\u2019s Federal Open Market Committee minutes rather than the macro cross-currents.<\/p>\n
Late headlines from the Strait of Hormuz drove the decisive move: Iranian forces struck three commercial vessels, and Washington responded with retaliatory strikes as the Treasury revoked sanctions relief on Iranian crude oil exports, giving counterparties until 17 July to wind down deals. Brent rose about 3% towards $76 a barrel, lifting the Dollar on haven demand and pushing EUR\/USD through 1.1410 late. The backdrop includes US CPI at 4.2% in May, a three-year high, and a June FOMC decision holding rates at 3.75% unanimously, alongside a median 2026 projection of 3.8%; futures imply roughly a three-in-four chance of a 29 July hold as jobless claims are seen at 218,000 versus 215,000 previously.<\/p>\n
We are seeing the Euro fail to rally even on seemingly good news, such as hawkish remarks from the ECB. Despite recent Eurozone core inflation remaining above target at 2.9%, the market is largely ignoring the central bank’s tough talk. This suggests a deeper bearish sentiment is at play, making it risky for us to buy into these small upward moves.<\/p>\n
The real story is the safe-haven bid for the dollar, fueled by new tensions in the Strait of Hormuz. With Brent Crude recently pushing past $85 a barrel, we see a direct impact on global inflation expectations and risk appetite. This is a classic risk-off environment that historically favors the dollar over the euro.<\/p>\n
This spike in energy prices feeds directly into fears of persistent US inflation, which recently printed a higher-than-expected 3.5% for the last month. We have seen this before, where energy shocks force the Federal Reserve to maintain a tighter policy for longer than anticipated. Therefore, every dollar added to a barrel of oil is another argument for the Fed to delay any potential rate cuts.<\/p>\n
The upcoming FOMC minutes are now the main event, and we will be looking for how the committee weighs this energy-driven inflation against a cooling labor market. Current Fed funds futures are only pricing in about a 30% chance of a rate hike by September, so a hawkish tone could reprice these odds quickly. This release will set the direction for the dollar in the coming weeks.<\/p>\n
Given the heightened uncertainty, we think buying downside protection on the Euro makes sense through the options market. Implied volatility for EUR\/USD options has risen but may still be cheap relative to the risk of a sharp move down toward the 1.1300 level. We should consider put options or put spreads to position for a potential retest of the June lows.<\/p>\n
Our bias remains bearish as long as the Euro stays below the 1.1450 resistance level, which has acted as a firm ceiling. The path of least resistance appears lower, with initial targets at 1.1350 and then the floor near 1.1300. Only a significant de-escalation in the Gulf or a surprisingly dovish message from the Fed would cause us to reconsider this view.<\/p>\n\n\n\n