The EUR/USD pair started the trading week with a small southern gap, reacting to the latest events in the Middle East. Friday's trading closed at 1.1766, while today the pair opened at 1.1754. The key point here is not the south gap itself but the muted market reaction to escalation signals: the price gap amounts to only 12 pips, and the market shows no downward impulse. The pair drifted in the middle of the 17th figure, reflecting indecision among both buyers and sellers. This suggests that, despite the grim news flow, traders continue to count on a diplomatic outcome to the Middle East conflict, even though recent events point in the opposite direction.

Let us begin with the fact that Iran declined the second round of talks with the US, which was supposed to take place today in Islamabad. Market participants link that decision to the ongoing blockade of Iranian ports. Washington, for its part, ties any deblocking to a peace deal — in other words, first a deal, then lifting the blockade.

Moreover, the United States attacked and seized a cargo ship flying the Iranian flag, which the US military says tried to bypass their naval blockade near the Strait of Hormuz. Representatives of Iran's Joint Military Command claim that Iranian forces struck US ships with combat drones in response.

All these events cast doubt on a near-term end to the conflict. The situation worsens because the two-week truce between the US and Iran expires in just two days, on April 22. Whether the parties can extend it or hostilities will resume remains an open question.

How do we explain traders' undue optimism? Instead of moving toward the base of the 17th figure, the pair now attempts to close the southern gap, showing inexplicable resilience.

In my view, market participants are now overemphasizing any, even the weakest and most tenuous, signals of a possible resumption of talks. For example, yesterday, media reported that, despite the aforementioned incident in the Strait of Hormuz, Washington is still sending a negotiating delegation to Islamabad led by US Vice President J. D. Vance. The reports claim the negotiating team will land in Pakistan on Monday evening, that is, today.

A logical question arises: did the US delegation led by the second-ranking official in the US political hierarchy really fly to the other side of the world without confirmation of Iran's participation? That question, as they say, carries an asterisk.

The point is that reports claiming Iran refuses the second round of talks remain unofficial. Only Iranian media, citing anonymous sources, reported that the talks would not take place. Meanwhile, Iranian officials did not issue any comments on the negotiations announced by Trump.

In addition, Pakistani media report that local authorities have already stepped up security measures in Islamabad, and such measures usually indicate preparation for meetings of high-level delegations.

The intrigue remains, and with it the hope for a diplomatic settlement of the conflict. As noted above, any sign that doubts about further escalation exist, the market interprets that as negative for the safe-haven dollar.

Thus, despite the grim news flow and belligerent statements by the parties, EUR/USD traders remain in limbo.

On the one hand, Tehran declares dialogue impossible until the maritime blockade lifts. On the other hand, the arrival of the US delegation (sent at Donald Trump's instruction, incidentally) keeps markets from full-scale panic. The incident with the Iranian vessel did not trigger a surge of risk-off sentiment.

For this reason, traders avoid opening large positions, since the talks' outcome (if they take place at all) may prove either a breakthrough—extension of the truce or even a framework agreement to end the war—or catastrophic—resumption of hostilities and withdrawal from the negotiating process. In conditions of such uncertainty, any trading decision, unfortunately, looks equally risky because the scales can tip toward either de-escalation or further escalation.

All of this suggests that a wait-and-see stance remains appropriate for EUR/USD. At present we observe, figuratively speaking, a calm before the storm. However, we cannot predict in which direction the "winds of volatility" will blow. Therefore, under current conditions it is preferable to stay out of the market.