The EUR/USD pair advances to approximately 1.1485 during the early hours on Monday. The Fed’s recent rate hike could support the US Dollar and limit the pair’s potential for appreciation. ECB’s Vujcic stated that energy is influencing rate expectations; however, the central bank will consider a wider array of indicators. The EUR/USD pair exhibits slight increases around 1.1485 in the early hours of the Asian session on Monday. However, the potential upside for the major pair may be constrained in light of the US Federal Reserve’s hawkish stance and the persistent tensions in the Middle East. European Central Bank President Christine Lagarde is scheduled to deliver remarks later on Monday. The Fed raised interest rates by a quarter-percentage point at its September meeting last week and indicated further hikes in the months ahead. New Fed Chair Kevin Warsh participated in a unanimous decision to raise interest rates, as officials confirmed a hawkish trajectory and anticipated an additional increase later this year. The Fed’s hawkish stance may bolster the USD, potentially serving as a headwind for the major currency pair.
Iran’s military has issued a new threat of retaliation against US military bases in the Middle East, coinciding with warnings from US President Donald Trump regarding the potential for renewed US strikes, according to NBC News. Indicators of an extended conflict in the Middle East may enhance safe-haven inflows, thereby bolstering the Greenback in the short term. ECB Vise President Boris Vujcic indicated that market speculation regarding additional rate increases is primarily influenced by rising energy prices. However, he emphasised that policymakers will consider a broader array of economic indicators when determining their forthcoming actions. Money markets anticipate an additional three or four rate hikes by the conclusion of next year, with the subsequent increase potentially occurring as early as October, as reported by Reuters. That would elevate the deposit rate to 3.25% or 3.50%. Strategists observe that the “outlook for relative central bank policy looks to be stabilizing” as markets reassess the near-term risk of further tightening from the ECB. They note that policymakers remain “overwhelmingly hawkish,” explicitly linking their stance to “both energy-related inflation concerns as well as growth.”
On the data front, Scotiabank highlights that “fundamental releases have been limited to stronger than expected German PPI,” reinforcing the case for caution among ECB officials even as policy expectations between the ECB and the Fed settle into a more balanced configuration. The Fed’s Kashkari delivered a slightly softer tone, with a 6.2/10 FXS Speechtracker score essentially in line with the 6.3/10 historical average, indicating only a marginal tonal shift. Emphasis that inflation remains too high and extends beyond oil prices keeps a hawkish bias intact. However, the focus on robust growth, a resilient American economy, and improving productivity introduces a cautiously optimistic narrative that inflation can be reduced without derailing expansion. The assertion that the bond market falls under the purview of the Treasury highlights a distinct allocation of responsibilities, allowing the Federal Reserve to concentrate its efforts on inflation and the labour market, which continues to be characterised as strong. The FXS Fed Sentiment Index decreased by 1.47 points to 150.61, reflecting a slight reduction in the perceived hawkish stance compared to recent communications.
However, with the index still well above the neutral 100 mark, the Fed remains firmly in hawkish territory, suggesting that despite the softer shift captured by the FXS Speechtracker, markets should still expect a policy stance biased toward containing inflation rather than easing prematurely. In the daily chart, EUR/USD maintains a bearish near-term tone as the spot remains below the 100-day Simple Moving Average and the Bollinger midpoint. The pair is positioned slightly above the lower Bollinger band support, with the Relative Strength Index at 36.4 nearing oversold territory. This indicates that downside pressure remains, although there is potential for a corrective pause. On the downside, the immediate support is the lower Bollinger band at 1.1460; a sustained break below this level would pave the way for new lows and intensify the bearish sentiment. On the topside, initial resistance is positioned at the 100-day SMA around 1.1545, succeeded by the Bollinger middle band near 1.1585, with a more remote cap at the upper band around 1.1710. These levels must be reclaimed to alleviate the prevailing downside pressure.
