EUR/USD traded sideways in Asia on Tuesday but stayed above 1.1400, remaining close to a near two-week peak set last Thursday. A 60-day US-Iran ceasefire appeared under strain as tensions rose in the Strait of Hormuz, after a maritime agency said an oil tanker was hit by an unidentified projectile while transiting the waterway. The fresh geopolitical risk offered the US Dollar (USD) some support, creating a headwind for the pair.
At the same time, the recent drop in crude oil has eased inflation concerns and reduced pressure for aggressive tightening, while softer US jobs figures from last Thursday tempered expectations for Federal Reserve (Fed) rate hikes, limiting USD follow-through. On the European side, European Central Bank (ECB) rate-hike pricing cooled after an unexpected fall in Eurozone inflation, leaving the single currency without a clear catalyst. Traders continued to watch whether EUR/USD can build on support from around 1.1325, the lowest level since May 2025, reached in June. Separately, the euro is used by 20 EU countries, and in 2022 it made up 31% of global FX turnover, averaging more than $2.2trn a day; EUR/USD represents about 30% of all transactions, versus 4% for EUR/JPY, 3% for EUR/GBP and 2% for EUR/AUD. The ECB meets eight times a year and targets 2% inflation.
—Consolidative Price Action And Macro Drivers
We see the EUR/USD pair caught in a consolidative phase, holding just above the 1.1400 level. Last week’s soft US jobs report, which showed only 155,000 jobs added in June against an expected 210,000, has capped US dollar strength. However, with Eurozone inflation unexpectedly dipping to 1.9% in the latest flash estimate, ECB rate hike expectations are also fading, limiting the Euro’s upside.
Geopolitical risks stemming from the Strait of Hormuz are providing a floor for the US dollar and acting as a headwind for the pair. The recent incident involving an oil tanker keeps tensions high, making long dollar positions a popular hedge against sudden escalations. For derivative traders, this suggests buying short-term USD call options or EUR put options could be a prudent strategy to protect against a sudden risk-off move.
—Trading Strategies Amid Geopolitical And Economic Uncertainty
On the other hand, falling crude oil prices, with Brent crude now trading near $72 a barrel, are easing global inflation fears and tempering the need for aggressive central bank action. The market is scaling back bets on Federal Reserve rate hikes, holding back the dollar. We should therefore monitor implied volatility; a sustained drop might signal complacency and offer a chance to buy cheap call options targeting levels above the recent highs.
Given these conflicting signals, we believe the pair will remain range-bound in the immediate future, likely between the June low of 1.1325 and the recent high. This environment is ideal for strategies that profit from either low volatility or a significant breakout, such as selling iron condors or buying strangles. A decisive break and close above the two-week high or below 1.1350 would be the trigger we need to establish a more directional position.
