EUR/USD records slight increases around 1.1625 during the early hours of the Asian session on Tuesday. The ECB is anticipated to increase interest rates once more on Thursday. The US and Iran engaged in hostilities against each other’s vessels, heightening concerns regarding the potential for an expanded conflict. The EUR/USD pair is experiencing modest gains, trading at approximately 1.1625 in the early hours of the Asian session on Tuesday. The Euro strengthens against the US Dollar amid expectations of a rate hike from the European Central Bank. Traders are anticipating the release of the US Producer Price Index and Consumer Price Index inflation data later this week.
The ECB implemented its initial rate increase since 2023 during the June policy meeting to address rising inflation; however, it opted to pause at the subsequent meeting in July to assess the evolving situation regarding the conflict. The ECB is poised to increase its benchmark rate for the second time this year during its policy meeting on Thursday. “The ECB governing council looks certain to raise its deposit rate from 2.25 percent to 2.5 percent,” said Andrew Kenningham. ECB President Christine Lagarde is anticipated to reveal minimal insights during her press conference following the rate decision, emphasising that forthcoming choices will rely on incoming data. Across the pond, a stronger-than-expected US jobs report revealed 162K job additions in August, leading to Federal Reserve rate-hike expectations exceeding 60%.
Additionally, ongoing tensions in the Middle East, characterised by reciprocal strikes between the US and Iran on vessels navigating the Strait of Hormuz, may lead to increased investment in safe-haven assets like the Greenback. Iranian Parliament Speaker Mohammad Baqer Qalibaf stated on Monday that “Strike our assets and you get struck.” Earlier on Monday, US Defence Secretary Pete Hegseth asserted that the US “will destroy (and sink)” Iranian oil tankers if Iran fires on U.S. vessels. Analysts highlight that, in Europe, “the ECB policy decision (Thursday) will be the key event,” with their European economics team expecting “a 25bp rate increase, taking the deposit rate to 2.50%.” They add that investors are likely to concentrate on “any guidance regarding the likelihood of further tightening,” particularly in light of their recently upgraded Euro Area growth projections for 2026 and 2027 and the softer EUR/USD backdrop amid a stronger Dollar and higher US yields.
In the daily chart, EUR/USD exhibits a slight bullish inclination as the spot price remains above the Bollinger middle band, aligning with the 20-day simple moving average and is comfortably positioned above the 100-day moving average. This configuration suggests that the broader uptrend remains intact, while the Relative Strength Index around 56 indicates a constructive yet not overextended bullish momentum. On the topside, immediate resistance emerges at the Bollinger upper band near 1.1710. A break at this level would pave the way for a more robust continuation of the advance. On the downside, initial support is provided by the 20-day SMA clustered around 1.1615, followed by the 100-day MA at 1.1560, while a deeper pullback would meet the lower Bollinger band near 1.1525.
