EUR/USD traded with a positive tone on Monday, holding near 1.1600 after reaching an intraday peak of 1.1662. Improved market sentiment following progress toward a peace agreement between the United States and Iran reduced demand for the US Dollar, traditionally viewed as a safe-haven currency during periods of geopolitical uncertainty.
Reports indicate that both countries have agreed on a framework aimed at ending the four-month conflict, with a final agreement expected later this week. The development has eased concerns over potential disruptions in energy supplies through the Strait of Hormuz, one of the world’s most important oil transportation routes. As a result, crude oil prices declined at the start of the week, reflecting expectations of improved supply conditions.
The drop in energy prices has also provided support for the Euro. The Eurozone remains highly dependent on imported energy, meaning lower oil costs can improve economic conditions by reducing production expenses and easing inflationary pressures. This has helped strengthen sentiment toward the shared currency.
Despite the positive momentum, investors remain cautious about extending EUR/USD gains until the peace agreement is officially signed. Uncertainty surrounding the final terms of the memorandum and the possibility of unexpected developments continue to limit aggressive buying interest.
On the monetary policy front, lower oil prices could reduce inflation risks in the Eurozone, potentially easing pressure on the European Central Bank (ECB) to tighten policy further. Nevertheless, ECB officials continue to highlight inflation concerns. Governing Council member Martins Kazaks noted that inflation risks remain tilted to the upside, while policymaker Joachim Nagel stated that the ECB remains open to further action if required and has not ruled out additional policy adjustments at upcoming meetings.
Market participants are now focused on the US Federal Reserve’s policy decision scheduled for Wednesday. While a pause in interest rates is widely anticipated, investors will closely monitor the Fed’s guidance regarding future policy moves. With US inflation still above target and economic data showing resilience, policymakers may prefer a cautious approach before considering additional rate cuts. Such a stance could help limit downside pressure on the US Dollar even as geopolitical risks continue to recede.
Trade Idea: Buy EUR/USD on dips near 1.1550–1.1570, targeting 1.1700, with a stop-loss below 1.1480. Positive risk sentiment and weaker oil prices may continue supporting the Euro.