The fundamental backdrop for EUR/USD remains highly contradictory because the geopolitical narrative has lost linearity. By the close of yesterday the market expected either a resumption of hostilities in the Middle East or the start of a second round of talks between the US and Iran. However, in the end neither event occurred. As a result of that half-measure, EUR/USD traders again find themselves in limbo.

So, contrary to optimistic leaks from several US media outlets, a new round of talks between Washington and Tehran did not take place. Iran's delegation canceled its planned participation in the Islamabad discussions at the last moment. Tehran accused the Americans of violating the terms of the temporary truce. For example, Iranian Foreign Minister Abbas Araghchi said that the continued US blockade of Iranian ports constitutes an act of war. After Iran's walkout, US Vice President J. D. Vance also canceled his trip to Pakistan.

Reacting to these disappointing headlines, EUR/USD plunged to 1.1720. The important point is that traders did not leave the 1.17 figure area, and the pair finished the trading day at 1.1743. Today the pair drifts in the 1.1740–1.1760 range.

As we see, market participants, against all odds, preserve hopes for a resumption of the diplomatic track, and certain prerequisites for that outcome do exist.

Thus, despite the diplomatic deadlock, the parties maintain a formal ceasefire. Yesterday evening, Donald Trump announced an extension of the temporary truce, which had been due to expire today. The President of the United States justified the extension as a request from Pakistan to give Tehran a chance to settle internal disagreements and present its counterproposals for a peaceful settlement.

Notably, Iran did not voice objections to this move.

At the same time, Trump explicitly stressed that the naval blockade of Iranian ports will remain in place and that US forces will stay at full combat readiness.

In other words, the situation again hangs in the balance. The truce is now, de facto, extended, but the lack of direct dialogue in Pakistan and the continued blockade of ports make the risk of renewed active hostilities very high in the coming days. Moreover, Axios reports that the White House gave competing Iranian factions a very short window — up to five days — to unite around a single counterproposal. So, the extension does not amount to an open-ended truce, but rather to a brief window for agreement. Axios insiders nevertheless say that the US negotiating team remains confident that a deal on ending the war and the future of Iran's nuclear program remains achievable.

On the other hand, US command continues to build up military presence in the Middle East. For example, a third aircraft carrier, USS George H.W. Bush, is now approaching the region with three destroyers and thousands of US service members. Experts say this will be the largest US naval buildup since the Iraq War in 2003.

Against such a contradictory fundamental picture, traders' caution in EUR/USD looks logical and well founded. At any moment, the scales can tilt either toward de-escalation or toward further escalation. Especially since the truce that Trump announced now effectively has an open-ended date and can be terminated at any minute.

That is why traders ignore macro signals, even though yesterday's releases favored the dollar rather than the euro. For example, ZEW indices came in much worse than expected, reflecting a deterioration in business sentiment both in Germany (-17.2 points) and in the euro area (-20.4). The current conditions indicator in Germany plunged to -73.7—the worst reading since late 2022 — and it reflects business fears of a long-term energy shortfall.

At the same time, the US retail sales report released yesterday printed in the green. Total retail sales rose 1.7% in March (forecast 1.4%) after a 0.7% increase in the prior month. Excluding auto sales, retail sales climbed 1.9% (forecast 1.4%).

However, some analysts point to a front-loading effect: facing accelerating inflation, US consumers began stockpiling goods in fear of higher prices and shortages, which may precipitate a sharp demand collapse next quarter. That is why market participants greeted the strong headline figures with coolness.

In short, EUR/USD traders are once again trapped in a range, and both buyers and sellers avoid opening large positions amid persistent Middle East tension and uncertainty. The working price range for EUR/USD has narrowed to 20 points, but the spring of expectations can unwind at any moment, for example, if Tehran agrees to talks or if Trump announces a return to hostilities. Given this bifurcation of outcomes, it makes sense to take a wait-and-see stance on EUR/USD at present.