EUR/USD fell 0.5% to near 1.1530 in the European session on Thursday, ending a two-day rebound. The move came as the US Dollar strengthened amid renewed risk aversion linked to the Middle East conflict.
The US Dollar Index (DXY) rose 0.5% to near 100.00. US President Donald Trump said Washington will intensify military attacks against Iran in the next two to three weeks and would target Iranian electric generating plants if Iran does not approve a deal.
Dollar Strength Driven By Risk Aversion
US data also supported the Dollar. ADP reported 62K private-sector jobs added in March versus an estimate of 40K and 66K previously, while the ISM Manufacturing PMI was 52.7 versus 52.5 expected and 52.4 prior.
The Euro weakened as oil prices rose on renewed conflict concerns. Higher oil costs tend to weigh on the Euro because the EU relies heavily on imported oil for energy needs.
We are seeing a dynamic that is reminiscent of the market mood back in 2025 when Mideast ceasefire hopes faded. At that time, a combination of geopolitical risk and strong US data pushed the EUR/USD down sharply. That playbook of a stronger dollar and weaker euro due to external pressures seems to be re-emerging.
Today, the situation is even more pronounced as the US Dollar Index is holding strong near 104.5, significantly higher than the 100.00 level we saw during that period in 2025. Recent data supports this, with the March Non-Farm Payrolls adding a robust 260,000 jobs, beating market expectations soundly. This economic outperformance continues to make the dollar the favored currency.
Derivative Strategies For A Weaker Euro
The Euro is facing similar headwinds from energy prices, a persistent issue for the import-dependent bloc. With Brent crude currently trading over $85 a barrel, higher than many Q1 forecasts, the pressure on the European economy is mounting. This is a key reason why EUR/USD is struggling around 1.0850, a much weaker position than the 1.1530 it held during that 2025 episode.
For derivative traders, this outlook suggests continued weakness for the EUR/USD in the near term. Buying put options with a strike price around 1.0750 could be a prudent strategy to capitalize on a further slide. This allows for profiting from downward movement while strictly defining the maximum potential loss.
Market volatility has also picked up due to the ongoing shipping disruptions in the Red Sea, which is keeping option premiums elevated. While this makes buying options more expensive, it also reflects the increased probability of sharp price moves that could make those options profitable. Watching implied volatility levels will be key to finding optimal entry points for these trades.
An alternative approach for those with a less bearish view is to sell out-of-the-money call spreads. This strategy would profit if the EUR/USD pair trades sideways or moves down, essentially betting that it will not be able to break through key resistance levels in the coming weeks. For instance, selling a call spread above the 1.0980 resistance could offer a high-probability way to collect premium.
