The Euro (EUR) traded mostly flat against the US Dollar (USD) on Monday, remaining capped below last week's highs in the 1.1660-1.1675 range, with seven-week lows at 1.1575 still nearby [1]. The EUR/USD pair saw an initial jump at the Asian session open, driven by optimism over a potential Middle East peace agreement, but gains were limited in thin holiday trading with US markets closed for Memorial Day [1]. Similarly, the US Dollar Index (DXY) dipped to the 99.00 area, retreating from 99.30, as investor optimism about a US-Iran deal and the possible reopening of the Strait of Hormuz reduced demand for the safe-haven Greenback [3].
US President Donald Trump stated over the weekend that an agreement between Washington and Tehran is possible, but emphasized that the US military will not lift the blockade of the Strait of Hormuz until a deal is signed [1][3]. US Secretary of State Marco Rubio confirmed that diplomacy would be prioritized, mentioning a 'fairly strong proposal at the table' to reopen Hormuz [1][3]. On the Iranian side, a Foreign Ministry spokesperson confirmed ongoing negotiations to end the war, reiterating that management of the Strait belongs to coastal countries [1]. Reports also indicate that the US and Iran are close to signing a deal involving a 60-day ceasefire extension, reopening the Strait of Hormuz, and Iran clearing mines in exchange for the US lifting its blockade on Iranian ports [2].
The Euro also strengthened against the Canadian Dollar (CAD), with EUR/CAD extending its winning streak for a fourth day to around 1.6080, as lower oil prices weighed on the commodity-linked CAD [2]. The drop in crude oil prices was attributed to easing supply fears amid rising optimism over a US-Iran agreement [2]. European Central Bank (ECB) policymakers, including President Christine Lagarde, are scheduled to speak later in the week, with markets watching for signals on inflation and interest rates [1][2]. ECB officials noted that the closure of the Strait of Hormuz could have secondary effects on wages and prices, and reiterated the need to return inflation to the 2% medium-term target [2]. ECB members suggested a rate hike in June is likely, but further moves would depend on developments in the US-Iran situation [2].
Technical analysis for EUR/USD shows the pair trading at 1.1644, within last week's range and close to seven-week lows, with momentum indicators (RSI at 58, MACD trending up) signaling improving upside momentum but not enough for a breakout [1]. Immediate resistance is at 1.1660, with further hurdles at 1.1720 and 1.1796, while downside is contained at 1.1575; a break below could target April lows between 1.1505 and 1.1525 [1].
Looking ahead, both the Eurozone and US have key economic events this week, including ECB President Lagarde's speech and the US Personal Consumption Expenditures (PCE) Price Index release on Thursday [1][3]. Recent US data has reinforced confidence in the economy's resilience, with markets now pricing in more than a 50% chance of a Federal Reserve rate hike this year, which could limit further downside for the US Dollar [3].
CONCLUSION
Markets are reacting to optimism over a potential US-Iran peace deal, which has weakened the US Dollar and oil prices while supporting the Euro and risk assets. However, gains remain limited amid thin trading and uncertainty over the finalization of any agreement. Upcoming central bank communications and economic data releases are expected to provide further direction for currency markets.