EUR/USD traded near 1.1540 in early Asian dealing on Tuesday, staying below 1.1550. Markets were focused on US President Donald Trump’s deadline linked to the Strait of Hormuz, with US Durable Goods Orders and the ADP Employment report due later on Tuesday.
On Monday, Trump said a proposed US ceasefire with Iran was “not good enough”. He said Iran’s power plants and bridges would be targeted on Tuesday if the waterway was not reopened by 8 p.m. Eastern Time (00:00 GMT Wednesday).
Strait Of Hormuz Deadline In Focus
Rising conflict risk kept attention on the Strait of Hormuz deadline. Further escalation could lift the US Dollar and weigh on EUR/USD.
US data on Monday showed the ISM Services PMI fell to 54.0 in March from 56.1 in February. It also came in below the 55.0 forecast, pointing to slower services growth.
In Europe, expectations for European Central Bank policy remained a factor for the euro. Markets are pricing in 2–3 interest rate hikes for 2026 due to energy-led inflation, compared with earlier expectations of no change.
Looking back at the tensions surrounding the Strait of Hormuz in 2025, we saw a classic flight to the dollar. Today, the focus has shifted dramatically towards central bank policy divergence. The European Central Bank’s recent actions are now the primary catalyst for movement in EUR/USD.
Central Bank Policy Divergence
The ECB followed through on its hawkish signals, raising its key interest rate by 25 basis points in February 2026 as the headline inflation rate in the Eurozone remains stubbornly high at 3.5%. This contrasts with the situation in 2025 when rate hikes were merely speculation. This policy supports buying call options on the Euro, as further rate hikes are now priced in for the second quarter.
In the United States, economic data presents a more mixed picture, with Q1 2026 GDP growth tracking at a modest 1.8%. While US inflation is still above target at 3.1%, the slowing momentum gives the Federal Reserve room to pause. This divergence suggests that selling USD calls or buying EUR/USD futures could be a favorable strategy.
We see that implied volatility for EUR/USD options has increased slightly in recent weeks, with the VIX index climbing back towards 19 amid new global trade uncertainties. This environment makes strategies like bull call spreads attractive, as they can profit from a rise in the EUR/USD while capping the upfront cost. It allows traders to capitalize on the Euro’s fundamental strength without being overly exposed to sudden risk-off events.
Recent data from the Commodity Futures Trading Commission confirms this bullish sentiment. Large speculators increased their net long positions on the Euro to a six-month high in late March 2026. This suggests that institutional traders are positioning for further upside in the pair in the weeks ahead.
