- EUR/USD scales higher for the eighth straight day as the USD slides to a fresh low since early March.
- Hopes for Iran diplomacy and Fed rate uncertainty undermine the USD’s reserve currency status.
- Hormuz risks could keep a lid on the market optimism, limiting USD losses and capping spot prices.
The EUR/USD pair is seen building on the previous day’s strong intraday move up of over 100 pips and gaining some follow-through traction during the Asian session on Tuesday. This marks the eighth straight day of a positive move and lifts spot prices to a fresh high since early March, around the 1.1765-1.1770 region in the last hour.
Despite failed peace talks over the weekend, investors continue to move towards riskier assets amid hopes that the door for Iran diplomacy remains open. In fact, US Vice President JD Vance struck a cautiously optimistic tone on negotiations with Iran and suggested that meaningful progress has been made even as talks have yet to deliver a breakthrough. This, in turn, undermines the US Dollar’s (USD) reserve currency status and acts as a tailwind for the EUR/USD pair.
Apart from this, the uncertainty over future interest rate moves by the US Federal Reserve (Fed) keeps the USD depressed near its lowest level since early March. That said, the instability surrounding shipping traffic from the Strait of Hormuz might keep a lid on the optimism and limit deeper USD losses. US President Donald Trump said that the U.S. Navy blockade of the strategic waterway has officially started and vowed to destroy Iranian warships that get near the blockade.
Iran responded with threats on all ports in the Persian Gulf and the Gulf of Oman, keeping geopolitical risks in play. Adding to this, fears that the ceasefire that is currently holding could collapse, and that the war could resume, might lend some support to the USD and hold back traders from placing aggressive bullish bets around the EUR/USD pair. The fundamental backdrop, however, backs the case for an extension of the pair’s recent uptrend from the late March swing low.
