The shared currency begins the week on a lower note, down 0.31% as risk aversion fueled flows towards the US Dollar amid heightened tensions in the Middle East. Also, hawkish comments by a Fed official underpinned US Treasury yields, suggesting markets expect the US central bank to raise rates. The EUR/USD trades at 1.1379 after reaching a high of 1.1445.
EUR/USD falls as Oil shock revives Fed tightening fears
The strength of the US Dollar is the main reason the Euro is being battered. The positive correlation between the Greenback and Oil prices suggests that a rally in crude prices triggers a flight to safety in the foreign exchange market. Why? Because high energy prices fuel speculation that major central banks — including the Federal Reserve- might need to raise interest rates.
Alongside the challenging geopolitical environment, Fed Governor Christopher Waller noted that a high core inflation reading would prompt immediate consideration of a rate hike. Although he maintains a hawkish stance, he believes it's plausible inflation could hit the 2% target without increasing rates and mentioned that the labor market is nearer to the Fed’s maximum employment objective.
This triggered a jump in US Treasury yields, with the US 10-year T-note surging 6 basis points to 4.624%, indicating that investors are preparing for an imminent rate hike by the Fed.
Consequently, the US Dollar Index (DXY), which measures the value of the American currency against six other currencies, is up 0.32% at 101.28.
Money markets are pricing in nearly 42 basis points of Federal Reserve tightening, according to Prime Terminal data.
Breaking news revealed that US CENTCOM announced at 16:45 ET that it began launching a third consecutive night of strikes against Iran. Iranian media reported that explosions were heard in Bandar Abbas and revealed that Iran’s army targeted US military facilities in Kuwait and a “hostile” US vessel with cruise missiles.
The US economic docket will feature the release of crucial US inflation data and the testimony of Fed Chair Kevin Warsh before the US Congress. Across the pond, the Eurozone schedule ill feature a speech by the European Central Bank (ECB) President Christine Lagarde.
EUR/USD Price Forecast: Technical outlook
In the daily chart, EUR/USD trades at 1.1385, keeping a bearish near-term bias as the pair holds beneath the clustered 50-, 100- and 200-day Simple Moving Average (SMA) around 1.1554 and within a downward parallel channel. The Relative Strength Index (RSI) at about 37 stays in bearish territory, suggesting downside pressure persists while the price remains capped by the channel structure and the descending trend-line that was previously broken near 1.1600.
On the topside, initial resistance is seen near 1.1422, where the lower boundary of the current downward channel now sits above spot, followed by the grouped daily SMAs around 1.1554, which reinforce the broader cap. Further up, the channel top near 1.1596 and the prior trend-line break area at 1.1600 form a dense resistance band ahead of the horizontal barrier at 1.1849, while the absence of clearly defined support below the market leaves EUR/USD vulnerable to further weakness if selling resumes.
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