EUR/USD has stayed firm with broader risk appetite, even as tensions in the Gulf have reduced hopes of a near-term resolution. It was noted that an equity market correction may not fit with the pair holding at current levels, even if European Central Bank rate pricing remains more hawkish than the Federal Reserve’s.
The eurozone calendar includes the ZEW surveys, which provide an early read on German sentiment in May. Consensus expects further deterioration in the expectations index and the current situation index.
The surveys were described as harder to read during heightened geopolitical volatility, but still expected to point to a worsening eurozone growth outlook. The stance on EUR/USD was set as bearish-leaning unless there are tangible steps towards a US-Iran peace deal.
A move above 1.180 was described as unlikely to hold in current conditions. A retest of 1.170 was presented as the more likely near-term outcome.
Looking back at the analysis from around this time in 2025, the prevailing view was bearish on the EUR/USD, with a focus on a potential retest of 1.170. This was driven by expectations of a worsening German ZEW survey and the risk of an equity market downturn linked to geopolitical tensions. However, the predicted weakness did not fully materialize as expected.
We saw that the German ZEW Economic Sentiment index, after a brief dip in May 2025, actually staged a recovery through the summer, eventually printing a positive reading of +8.5 by August 2025 as industrial orders showed surprising resilience. The anticipated sustained deterioration in sentiment failed to take hold, which caught many shorts off guard. This highlighted the danger of relying too heavily on sentiment surveys during periods of shifting economic data.
Furthermore, the feared equity correction never happened in mid-2025; the S&P 500 actually climbed over 3% between May and July last year, showing that risk appetite remained strong. This resilience proved incompatible with a weaker EUR/USD, demonstrating that the pair was more closely tied to broad market sentiment than specific geopolitical headlines at the time. The break above 1.180, once seen as unsustainable, became a new level of support by late summer.
Given that history, we should now be wary of positioning for a significant euro decline based on sentiment alone, especially with the ECB still maintaining a hawkish stance compared to the Fed. The lesson from last year is that the central bank policy divergence acts as a powerful floor for the currency pair. Therefore, shorting the euro aggressively here presents a poor risk-reward profile.
In the coming weeks, a more prudent strategy would be to use options to express a cautiously optimistic view. We could consider selling out-of-the-money EUR/USD put options with a strike near 1.1750 to collect premium, betting that the support level established in late 2025 will hold. This approach benefits from time decay if the pair remains stable or moves higher, while defining our risk to a specific level.
