The EUR/USD pair has softened to approximately 1.1375 during the early Asian session on Friday. Market participants are assigning approximately a 67.5% probability to the Federal Reserve implementing another rate hike during its upcoming meeting in October. Iran’s President stated that the US ‘must choose’ whether to bring an end to the conflict. The EUR/USD pair is experiencing slight declines, hovering around 1.1375 in the early hours of trading in Asia on Friday. The US Dollar strengthens against the Euro amid hawkish signals from Federal Reserve officials and a lack of progress in US-Iran talks. Traders prepare for the upcoming remarks from the Federal Reserve on Friday. The 30-year US Treasury bond yield reached a high of 5.501%, a level not seen since June 2004, while the US 10-year Treasury yield climbed to 5.223%, a level not reached since June 2007. Traders are increasing their wagers on an additional rate hike by the Federal Reserve, driven by rising oil prices, a resilient US economy, and hawkish statements from Fed policymakers. Philadelphia Fed President Anna Paulson stated on Thursday that further tightening may be necessary if the economy continues to develop as anticipated. She added that inflation continues to be significantly above the Fed’s 2% target.
According to the CME FedWatch tool, markets are currently assigning approximately a 67.5% probability to an October benchmark rate hike, an increase from 55.4% a week prior and 11% a month ago. Meanwhile, discussions between the United States and Iran exhibited minimal indications of advancement. Iranian President Masoud Pezeshkian stated that the decision to conclude its conflict with the Islamic Republic lies with the United States, as Tehran is not inclined to persist in hostilities, according to Fox News. Negotiations are currently at an impasse, as both parties are reluctant to relinquish their respective advantages, as indicated by remarks made to Reuters by two sources from Iran. Uncertainty surrounding the US-Iran negotiation and ongoing Middle East conflicts may enhance safe-haven flows, thereby bolstering the Greenback and presenting a challenge for the major pair. Strategists note that the Euro “retains a soft undertone,” with price action still reflecting “the sustained widening in front-end spreads on the one hand and ongoing EU concerns about the impact of a potential US export ban of diesel on the other (despite US denials yesterday that it would not pursue a 90-day ban).”
On the data front, they highlight that Germany’s IFO survey “improved a little more than expected in September, with the Business Climate Index firming to 89.9 and Expectations rising to 90.4.” Scotiabank adds that “the IFO sentiment data has diverged (unusually) from German GDP since 2024,” but the “lag remains apparent” and “improved sentiment aligns somewhat better with firming growth trends in the economy.” Fed’s Hammack conveys a decidedly hawkish stance, reflected in an FXS Speechtracker score of 7.4/10, which is marginally softer compared to the historical average of 7.6/10. Emphasising that “price stability is responsibility of central banks” while issuing warnings about elevated inflation amidst robust demand, with risks skewed to the upside, highlights a firm dedication to maintaining a restrictive policy stance. The caution that prolonged high inflation becomes harder to tame reinforces expectations that the Fed will resist premature easing, a backdrop typically supportive for the Dollar. The FXS Fed Sentiment Index decreased by 0.46 points to 148.18, indicating a slight reduction in hawkish intensity relative to recent communications.
However, with the index still firmly entrenched in hawkish territory well above the 100 neutral mark, the overall policy tone continues to be restrictive, notwithstanding the slight softening indicated by the FXS Speechtracker. In the daily chart, EUR/USD continues its decline beneath the 20-day Bollinger middle band and the 100-day simple moving average, both serving as resistance to upward movement. This location under key daily averages reinforces a bearish near-term bias, even as the latest Relative Strength Index reading at 25.13 signals oversold conditions that could slow the downside rather than reverse it decisively. On the downside, immediate support is provided by the lower Bollinger Band at 1.1355, where selling pressure may experience a temporary halt. On the topside, initial resistance is observed at the 100-day SMA at 1.1532, closely followed by the 20-day Bollinger middle band at 1.1535. A more substantial barrier is identified at the upper Bollinger Band near 1.1715, which is likely to limit any deeper corrective bounce for the time being.
