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Natixis says the euro-dollar selloff is a buying opportunity.

The sharp selloff in euro-dollar triggered by the Middle East conflict may present an opportunity to position for a rebound, according to analysts at investment bank Natixis.

EUR/USD fell to a low of 1.1530 on Tuesday as surging energy prices and safe-haven demand boosted the U.S. dollar, before stabilising back above the 1.16 level in subsequent trading.

The move reflects what strategists describe as a classic crisis-driven market response.

"The recent EUR/USD sell-off has taken place in an exceptionally stressful macro and geopolitical environment," Natixis says, noting that the outbreak of war between the U.S. and Israel on one side and Iran on the other delivered a stagflationary shock that pushed energy prices sharply higher and triggered a rush into the dollar.

However, the bank believes the dollar's gains are more cyclical than structural.

With expectations still pointing to monetary easing from the Federal Reserve later this year, and persistent concerns about U.S. fiscal deficits, Natixis argues that the broader forces weighing on the dollar remain intact.

"This leads us to our forecast of a progressive EUR/USD recovery towards 1.20 by year-end."

Rather than expressing that view through the spot market, Natixis recommends implementing the trade via the options market.

The strategy involves buying a EUR/USD call reverse knock-out, a structure that offers upside exposure to a rebound in the currency pair while limiting the potential loss to the premium paid.

Using options instead of a direct spot position has several advantages in the current environment.

The geopolitical backdrop remains volatile and short-term swings in EUR/USD could easily trigger further downside before any recovery takes hold. An options structure allows investors to maintain bullish exposure while protecting against those interim moves.

"This is why we propose a EUR/USD call reverse knock-out to play the rebound," the bank says, describing the structure as offering an "attractive risk/reward profile" with limited downside.