The best response to uncertainty is caution. Markets do not know how talks between the United States and Iran will end, or whether they will happen at all. How high will European inflation run, and how will the ECB react? What will the confirmation process for Kevin Warsh as Fed chair mean? In this environment, it is often better to close positions and sit on the fence, which shows up as EUR/USD consolidation.

Donald Trump says he will not accept a bad deal, expects Tehran to attend talks, and is prepared to resume bombing if it doesn not. The US president plays his usual game: negotiating with a gun at the table, backing off a little to secure the opponent's acceptance of his terms. Will Iran concede?

The European Central Bank views the Middle East conflict as a serious, unpredictable shock, so it needs time to assess and decide. Christine Lagarde is prepared to hike interest rates aggressively if governments become too generous with fiscal stimulus. Her deputy, Luis de Guindos, urges caution.

Dynamics of business confidence in Germany

The ECB needs to be cautious — measure twice, then cut once. The drop in German investor confidence to a three-year low points to serious problems in Germany's economy. A surge in Brent threatens stagflation — rising inflation concurrent with slowing growth. These two-way risks complicate the ECB's decision-making and, in turn, temper EUR/USD's bullish momentum.

Meanwhile, at the Fed, the chairmanship may change. The Senate has begun hearings on Kevin Warsh, President Trump's nominee. Markets will watch his testimony closely. Republicans hold a Senate majority, but Senator Tom Tillis's reluctance to confirm Warsh while legal proceedings concerning Jerome Powell continue could derail the process. After May 15, the central bank chair's seat may still be occupied by the current incumbent.

Investors will focus on Warsh's inflation views. The more he emphasizes cuts to the federal funds rate amid a temporary uptick in consumer prices, the more senators may see him as a Trump-aligned pick.

Sooner or later, the geopolitical conflict in the Middle East will end, and the dollar's fate will depend on Fed policy and the FOMC's composition.

Technically, the daily chart shows that EUR/USD is contesting the important pivot level of 1.1760. A break below that level could drag the price down toward 1.1730 and 1.1700, offering good selling opportunities. Conversely, if buyers hold the support level, the odds of a euro rally toward 1.1830 and 1.1865 will increase.