The EUR/USD pair remained stable near 1.1590 during the early Asian session on Thursday, with upside potential limited by hawkish Federal Reserve expectations and escalating conflict in the Middle East [1]. Fed Chair Kevin Warsh warned last week that policymakers may need to tighten again if inflation does not convincingly move toward 2%, which has increased expectations for a September Fed rate hike to 62.3%, up from below 40% prior to his speech, according to the CME FedWatch tool [1]. This hawkish stance is seen as a headwind for the euro, potentially supporting the US dollar [1].
Geopolitical tensions also contributed to market uncertainty, as US President Donald Trump stated on Wednesday that strikes on Iran would likely be short-lived and reiterated US control over the Strait of Hormuz. Meanwhile, Iran's Supreme National Security Council Secretary Mohsen Rezaei warned that Washington will soon witness Tehran’s “new strategy” for war, raising concerns about safe-haven flows and further supporting the Greenback [1].
On the European side, ECB policymaker Gabriel Makhlouf emphasized that the central bank should not shy away from additional rate hikes if inflation moves in the wrong direction, while ECB Governing Council member Joachim Nagel noted that markets see over a 95% chance of a September rate hike [1]. Despite these hawkish signals, strategists at Scotiabank highlighted that euro weakness has coincided with a rebound in energy markets, sparking concerns about the euro area’s terms of trade as a major energy importer. The shift in commodity dynamics is undermining support for the euro, reinforcing a bearish tone toward the single currency [1].
Technical analysis shows EUR/USD is well-supported above the 100-day simple moving average (SMA) at 1.1565, with a neutral Relative Strength Index (RSI) at 51.80, suggesting balanced near-term momentum and scope for either modest gains or further consolidation. Resistance is seen at the Bollinger middle band around 1.1605 and the upper band near 1.1708, while support is at the 100-day SMA and the lower Bollinger band around 1.1500 [1].
CONCLUSION
The euro remains under pressure due to hawkish Fed rhetoric, rising Middle East tensions, and concerns about energy prices impacting the euro area’s terms of trade. Despite some technical support, market sentiment is increasingly bearish toward the single currency. Upcoming US economic data and ECB decisions will be closely watched for further direction.