The Euro rose against the US Dollar for a second day on Thursday, trading near 1.1765. Moves were linked to hopes of a peace deal involving the US and Iran, alongside stronger Eurozone data.
The pair found support as oil prices fell on reports of progress in talks. Tehran is said to be reviewing a US peace plan, and Al Hadath reported that discussions to reopen the Strait of Hormuz are advanced.
Fed Signals And Dollar Reaction
Boston Fed President Susan Collins said rates may stay on hold for a long time, while rate cuts remain a baseline scenario. These comments had little effect on EUR/USD.
Eurostat reported Eurozone retail sales fell 0.1% in March, compared with a 0.3% drop expected. February was revised to a 0.3% fall, and annual sales rose 1.2% versus a 1% forecast, after 1.3% in February.
Germany’s factory orders rose 5% in March, above the 1% forecast and up from 1.4% in February. The pair stayed below resistance between 1.1790 and 1.1800, with support near 1.1745 and a key zone between 1.1745 and 1.1775.
Looking back to this time in 2025, we saw the EUR/USD rally toward 1.1765, driven by optimism over a potential peace deal concerning the Strait of Hormuz and strong European data. That sentiment was based on a temporary dip in oil prices and a belief that the Eurozone economy was resilient. The market at that time was pricing in a positive geopolitical outcome that would ease energy shocks.
How The Backdrop Changed
Today, the situation has evolved significantly, with EUR/USD trading closer to 1.0750. The optimism surrounding the Strait of Hormuz faded by late 2025, and while tensions have shifted, the underlying geopolitical risk premium in energy prices has returned. WTI crude oil, for instance, is currently trading near $81 per barrel, reflecting persistent global demand and supply uncertainties, unlike the brief dip seen last year.
The robust European economic data from early 2025 has also reversed course. German factory orders have struggled, posting a 0.4% decline in the latest reading for March 2026, a stark contrast to the 5% surge we saw a year ago. Similarly, Eurozone retail sales are now showing a year-over-year contraction of 0.7%, a complete reversal from the 1.2% growth that buoyed the euro at this time last year.
This economic divergence is now heavily influencing central bank expectations, shifting market dynamics from where they were in 2025. While the Federal Reserve has begun a cautious rate-cutting cycle, the European Central Bank is signaling a more urgent need for easing due to the deteriorating economic outlook. This growing policy divergence is placing sustained downward pressure on the euro, a factor that was not present last year.
For derivative traders, this environment suggests that the bullish momentum from 2025 is long gone. Options strategies that protect against further EUR/USD downside, such as buying put options or establishing put spreads, should be considered to hedge against a drop toward the 1.0600 support level. Implied volatility remains moderate, making protective positions relatively affordable for now.
Considering the shift in interest rate differentials, carry trades are also becoming less favorable for holding long euro positions. We should anticipate that any rallies in EUR/USD will be seen as opportunities to sell, with resistance now likely firm around the 1.0850 mark. The technical indicators that were bullish in 2025 have since turned bearish on longer-term charts, confirming this change in the underlying trend.
