Short-Term Sentiment and Event Risk
We believe the deal to reopen the Strait of Hormuz is creating short-term positive sentiment, but the conflicting details from both sides suggest this is a fragile situation. The 60-day negotiation window introduces significant event risk, making the current rally in EUR/USD vulnerable to a sharp reversal. We are therefore positioning for a spike in volatility rather than a sustained directional move. The Federal Reserve meeting this Wednesday is the most immediate risk factor for the pair’s upward momentum. While we expect rates to remain at 3.75%, any hawkish commentary from new Fed Chair Kevin Warsh could quickly strengthen the dollar. We remember how the aggressive tightening cycle of 2022-2023 drove significant dollar strength, a history that suggests caution is warranted.Strategic Positioning and Technical Considerations
Given these crosscurrents, we are using options to express our view instead of trading the spot market directly. Buying EUR/USD call options allows for participation in further upside while defining our maximum loss if sentiment suddenly sours. The recent rise in one-month implied volatility from around 7% to over 9% in the past week confirms the broader market is also bracing for a significant price swing. Looking at the bigger picture, the fact that nearly 20% of global petroleum consumption passes through the Strait of Hormuz means any breakdown in the deal will have major economic consequences. The current EUR/USD level near 1.1600 is approaching a technical resistance zone we haven’t seen tested since 2021. For these reasons, traders with existing long positions should consider purchasing put options as a hedge against a sudden downturn in the coming weeks.Start trading now — click here to create your real VT Markets account.
