Euro flat lines near 1.1650 vs USD as ECB hike bets offset hawkish Fed and geopolitics

• EUR/USD lacks a firm intraday directional bias and oscillates in a range at the start of a new week.
• Geopolitical risks and hawkish Fed expectations revive the USD demand, capping gains for the pair.
• Bets that the ECB could hike rates this month support the EUR and act as a tailwind for spot prices.

The EUR/USD pair struggles to capitalize on its recent recovery gains registered over the past two days, from the 1.1585 support zone, and seesaws between tepid gains/minor losses heading into the European session on Monday. Spot prices currently trade just above mid-1.1600s, nearly unchanged for the day, and move little following the release of the better-than-expected German Retail Sales figures.

Official data released by Destatis showed that German Retail Sales, a key measure of consumer spending, declined again by 0.3% in April. The reading, however, was slightly above consensus estimates for a 0.4% fall and matched March's upwardly revised reading of -0.3%. The EUR/USD pair draws some support from the upbeat macro data, though a broadly firmer US Dollar (USD) keeps a lid on any meaningful upside.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, moves away from a two-week low, touched on Friday, amid persistent geopolitical uncertainties and hawkish US Federal Reserve (Fed) expectations. Major US-Iran differences over Tehran's nuclear program and the Strait of Hormuz have complicated diplomatic efforts to reach a deal to end an over three-month-old conflict in the Middle East.

Iran’s chief negotiator, Mohammad Bagher Qalibaf, stated that the country will not accept any agreement until its national rights are fully secured. Moreover, reports suggest that the US has hardened its negotiating position with Iran. Adding to this, Israel's incursion into Lebanon keeps geopolitical risk in play, which, in turn, helps revive demand for the safe-haven Greenback and is seen acting as a headwind for the EUR/USD pair.

Meanwhile, the latest developments trigger a modest recovery in Crude Oil prices, from over a one-month low set on Friday, fueling inflationary concerns and reaffirming bets that the Fed will raise interest rates in 2026. The outlook turns out to be another factor offering support to the USD. However, bets that the European Central Bank (ECB) could raise interest rates as soon as this month help limit the downside for the EUR/USD pair.

Traders now look forward to the release of the US ISM Manufacturing PMI for a fresh impetus later during the early North American session. Apart from this, other key US macro data scheduled at the start of a new month, including the closely-watched US Nonfarm Payrolls (NFP) report on Friday, and fresh developments surrounding the Middle East conflict, should contribute to infusing volatility around the EUR/USD pair.