Euro Defensive vs Dollar Amid Geopolitical Risks, Traders Await Lagarde Speech

EUR/USD opened the week extending its defensive stance, with spot prices consolidating weakly around the 1.14754 region. Although the pair had rebounded slightly from lows seen since late July, the rebound momentum failed to sustain. Market reports indicate that safe-haven sentiment triggered by US military deployments against Iran continues to intensify, while strong US economic data has weakened market expectations for Fed rate cuts—together providing robust support for the dollar and putting significant pressure on the euro.

**Multiple Headwinds Stack Up, Euro's Near-Term Outlook Darkens**

Geopolitical risk has become the core factor suppressing the euro. According to Citi Research analysis, Europe is facing escalating geopolitical risks through NATO channels, and even with a more hawkish European Central Bank stance, these risks could still limit the euro's upside. Meanwhile, options market indicators confirm the bearish sentiment, with risk reversal metrics showing traders' short-term bearishness on the euro has turned to its most pessimistic level since last October, with concentrated buying of put options at strike prices around 1.17 and 1.15 for protection.

**Focus on Lagarde's Speech for Policy Clues**

Against a fragile market backdrop, investors are closely watching the upcoming speech by ECB President Lagarde. Lagarde has previously warned that trade and geopolitical tensions remain key sources of uncertainty for eurozone economic growth. Markets will closely monitor her latest assessment of the economic outlook and inflation risks for clues on the future monetary policy path. Any hint that geopolitical risks are having a greater impact on the economy could further weigh on the euro.

**Institutional Views Lean Cautious**

Multiple institutions hold cautious views on the euro's near-term trajectory. ING Bank strategist Francesco Pesole warned that the euro remains overvalued and does not fully reflect geopolitical risks. Danske Bank analysts also noted that current geopolitical risks are becoming a catalyst for dollar strength. Citi, on its part, believes that official US acknowledgment that Iran-related energy risks may persist means the room for optimistic trading on potential peace deal headlines will be limited, which could make the euro's rebound face greater resistance.