The US Dollar (USD) continues to exhibit strength against major currencies, with the EUR/USD pair consolidating around the 1.1365-1.1370 region during the Asian session on Tuesday, trading near its lowest level since July 28, while the USD/CAD pair has risen to its highest level since July 9, approaching the 1.4200 mark [1][2]. This bullish momentum in the USD is underpinned by the Federal Reserve's hawkish outlook, as the US central bank projected another rate increase by the end of this year after delivering a widely expected 25 basis points hike earlier this month—the first in over three years [1][2]. Energy-driven inflation concerns are also supporting prospects for additional Fed tightening, pushing US bond yields to multi-year highs and keeping the USD Index (DXY) near a two-month high [1][2].
Geopolitical uncertainties, particularly the US-Iran standoff, are further benefiting the safe-haven USD. US President Donald Trump rejected an Iranian proposal to end fighting and reopen the Strait of Hormuz immediately on meeting their terms, though media reports suggest Trump may be ready to ease sanctions and release Iran's frozen assets in exchange for progress on its nuclear program [1][2]. These developments are capping crude oil prices, which, combined with the Bank of Canada's dovish policy outlook and US-Canada trade tensions, are weighing on the Canadian Dollar (CAD) and supporting the USD/CAD pair [2].
Technical analysis indicates that the EUR/USD pair remains bearish, with a convincing break below the 1.1350 horizontal support needed to back further losses, potentially dropping to the year-to-date low near 1.1325 touched in June, en route to 1.1300. Any attempted recovery is likely to attract fresh sellers near the 1.1460 supply zone, with upside capped near the 200-day SMA at 1.1557 [1]. For USD/CAD, spot prices hold firmly above the 100-day SMA at 1.3977, reinforcing a bullish near-term bias and suggesting a further move up to the cycle high at 1.4248, which defines immediate resistance. Initial support is located at the 78.6% retracement at 1.4137, followed by the 61.8% level at 1.4049 and the 50% retracement at 1.3988 [2].
Market participants are showing caution, with traders waiting for further developments in the Middle East crisis before placing fresh directional bets on EUR/USD [1]. Bulls in USD/CAD may also opt to wait for this week's release of the US Personal Consumption Expenditures (PCE) Price Index and the US Nonfarm Payrolls (NFP) report [2]. Meanwhile, ECB President Christine Lagarde stated that a measured policy response remains appropriate, as there is no evidence at this stage of energy prices feeding into higher wages, pushing back on market bets for a more aggressive rate-hiking cycle and keeping Euro bulls cautious [1].
CONCLUSION
The US Dollar's strength, driven by the Federal Reserve's hawkish stance and ongoing geopolitical tensions, has pushed EUR/USD and USD/CAD to multi-month lows. Technical and fundamental factors suggest continued downside risk for EUR/USD and upside momentum for USD/CAD, though traders are awaiting key economic data and further geopolitical developments before making new bets. The market impact is high, with sentiment leaning positive for the USD and negative for its counterparts.