The euro fell against the US dollar on Wednesday, with EUR/USD hitting a fresh six-week low at 1.1583 and trading near 1.1590. Oil stayed above $100 amid rising US-Iran tensions, supporting the US dollar.
Final Eurozone HICP data confirmed annual inflation rose to 3% in April from 2.6% in March. Monthly inflation eased to 1% from 1.3%.
Inflation Signals And Market Focus
Core HICP inflation slipped to 2.2% from 2.3%, while the monthly core rate rose to 0.9% from 0.8%. Germany’s PPI showed annual producer inflation at 1.7% in April, up from -0.2% in March.
Markets monitored implications for ECB policy after the data. In the US, attention turned to the minutes of April’s Federal Reserve meeting, after rates were kept on hold with one member voting for a cut and three seeking to remove the “easing bias” wording.
EUR/USD remained under pressure after falling about 1.6% in just over a week. The 4-hour RSI was near 26, and the MACD histogram sat around the zero line.
Moves higher were capped below 1.1610, with resistance around 1.1650 to 1.1670. Below 1.1590, the next area noted was 1.1510 to 1.1525.
Shift In Macro And Policy Backdrop
Looking back to this time in 2025, we were dealing with the euro hitting six-week lows around 1.1583 amid soaring inflation and geopolitical fears over Iran. The market was consumed by the idea of an aggressive European Central Bank (ECB) having to hike rates to combat rising prices. The entire landscape has dramatically shifted in the last twelve months.
Today, the EUR/USD is trading at a much weaker level, hovering near 1.0850, as the economic picture has diverged. Eurozone inflation has cooled significantly, with the latest Harmonised Index of Consumer Prices (HICP) for April 2026 coming in at 2.4%, well below the 3% we saw a year ago. In contrast, U.S. consumer price inflation remains more persistent, recently reported at 3.4%.
This divergence is driving central bank policy and is key for our strategy. A year ago, we were bracing for ECB rate hikes; now, the market is almost fully pricing in an initial rate cut from the ECB at its meeting next month. According to interest rate futures, there is over a 90% probability of a 25-basis-point cut in June 2026.
Meanwhile, the U.S. Federal Reserve is holding firm with its “higher for longer” message, as a resilient labor market and sticky inflation give them no reason to ease policy yet. This policy difference, where the ECB is set to cut rates while the Fed waits, puts fundamental downward pressure on the euro relative to the dollar. The split Fed committee we saw in 2025 has become a unified hawkish front.
The geopolitical situation has also changed, taking some pressure off the Eurozone. Last year, the conflict in Iran kept oil prices stubbornly above $100 a barrel, hurting the bloc’s energy-importing economies. Today, WTI crude oil is trading closer to $80 a barrel, providing some economic relief and reducing the safe-haven demand for the U.S. dollar that was so prevalent in 2025.
Given this outlook, we should consider buying put options on the EUR/USD to profit from or hedge against further downside. A break below the recent support at 1.0720 could open the door to a test of the 2026 lows near 1.0600. These options offer a defined-risk way to position for a weaker euro as the ECB begins its easing cycle ahead of the Fed.
We should also watch implied volatility, which is expected to rise heading into the June central bank meetings. Traders could use long straddle or strangle option strategies to play an increase in volatility if they anticipate a larger-than-expected market move following the ECB’s decision. This is a way to trade the event itself without betting on a specific direction.
