Insights 
VT 
The Euro strengthened on Monday, recovering losses against a weaker US Dollar amid improving market sentiment. The EUR/USD pair rebounded to levels above 1.1580 from lows of 1.1490 after Friday’s Middle East tensions, specifically Israel’s attack on Iran.
Although hostilities between Israel and Iran persisted over the weekend, the situation hasn’t expanded regionally. Iran has not threatened the Strait of Hormuz, crucial for oil traffic, which could potentially involve the US in the conflict.
Market Reactions and Dollar Decline
The US Dollar, which rose on safety concerns, is declining due to ongoing tariff uncertainty and lack of progress in trade deals. Attention is on the Federal Reserve’s upcoming monetary policy decision, with speculation of a potential dovish statement.
In Europe, Bundesbank President, Joachim Nagel, maintained a neutral stance but mentioned that flexibility in monetary policy is needed. Eurozone’s industrial production contracted by 2.4% in April, against an expected 1.7% fall.
The EUR/USD pair maintains its upward trend, finding support around 1.1495-1.1500. The next resistance lies in the 1.1615-1.1630 range. A fall through 1.1460 would challenge the bullish outlook.
Monday’s recovery in the euro served more as a correction than a shift in broader momentum, reversing some of last week’s sharp moves that were driven primarily by geopolitical stress rather than economic fundamentals. While tensions between Israel and Iran continue, what mattered to the markets was the degree to which those tensions expanded—or rather, didn’t.
The Strait of Hormuz, one of the world’s most important oil chokepoints, remained unaffected despite worries over the weekend that it might be used by Tehran to escalate pressures. That clarity—however temporary—allowed risk appetite to return slightly, which in turn pressured the Dollar and lifted the euro.
Meanwhile, Greenback weakness was compounded by other layers of uncertainty. With tariff policies still in flux and trade negotiations showing little tangible output, there’s a growing unease that the United States may drift without clear economic direction for a period. While Dollar demand during times of stress is well-known, it seems that traders are starting to reassess how long to hold onto safety-led positions in the absence of fresh catalysts—particularly when economic releases and central bank commentary steer in the opposite direction.
Fed Policy and Eurozone Strategy
Markets are now gearing up for the Federal Reserve’s next move. Powell and his team face increasing scrutiny, especially with inflation risks no longer forcing aggressive action and employment numbers softening at the margins. If the Federal Reserve opens the door to policy loosening—or even casts doubt on the need for continued restraint—it would lower the yield advantage of US assets. That possibility is being priced in slowly, leading to shorter-term pullbacks in the Dollar.
On the European side, Nagel’s remarks did little to spark movement by themselves, but reaffirmed the strategy from core Eurozone policymakers: wait, assess, and leave room to change course. Flexibility is the key word here—not expansion, not tightening, just optionality. The recent drop in industrial output will give the European Central Bank further ammunition to avoid hawkish surprises. However, the contraction being steeper than analysts anticipated caught attention, and it reinforces the perception that Eurozone growth remains fragile. That fragility does not currently threaten the currency path, but it limits upside beyond immediate technical levels.
The EUR/USD pair, for the time being, continues to respect the defined channel. Recent lows around 1.1495 to 1.1500 proved to be effective support. Markets appear reluctant to test those again without a fresh increase in tension or policy change. With resistance around the 1.1615 to 1.1630 region, there’s still room for brief momentum-led moves higher, particularly if this week’s US data or Fed guidance underwhelms.
Underneath that, however, sits a pivotal level near 1.1460. Should the pair decisively break through and hold below that threshold, the optimism would reverse and suggest waning sentiment across key euro pairs. In the near term, price action suggests more responsiveness to shifts in Dollar sentiment than any push out of Europe.
From our perspective, the attention should shift to incoming Fed statements and US macro data. Unless hard surprises emerge from the Middle East again, the days ahead may be shaped more by policy tone and macro indicators than headline shocks. Price-sensitive traders would do well to remain alert to how closely the pair hugs its current support before assuming any sustained bullish extension.
