Euro remains depressed below mid-1.1500s vs bullish USD as focus remains on FOMC

• EUR/USD remains depressed for the fourth consecutive day amid sustained USD buying.
• Fed rate hike bets, elevated US bond yields, and Middle East tensions benefit the buck.
• Traders keenly await the crucial FOMC decision on Wednesday before placing fresh bets.

The EUR/USD pair attracts some sellers for the fourth straight day and trades below mid-1.1500s during the Asian session on Tuesday, just above a one-month low touched the previous day. Moreover, the fundamental backdrop suggests that the path of least resistance for spot prices remains to the downside.

The US Dollar (USD) retains its bullish bias ahead of the two-day FOMC policy meeting, starting later today, amid a combination of supporting factors and continues to weigh on the EUR/USD pair. Against the backdrop of firming US Federal Reserve (Fed) rate hike expectations, inflation risks stemming from higher energy prices keep US bond yields near multi-year highs. This, along with escalating US-Iran tensions, underpins the safe-haven buck.

US Treasury yields edge toward key 5% threshold

ING’s Padhraic Garvey warns that the Fed will be keenly aware of mounting pressure along the curve, noting that the 10-year US Treasury yield is “looking for an excuse to mark at 5%.” He points out that the benchmark, “now at 4.9%, it’s been bullied up there partly by high inflation readings, and more worryingly, a more recent slow ratchet higher in inflation expectations.” While he stresses that these expectations “are not at sinister levels,” Garvey argues they “could do with some treatment from the Fed in order to at least help contain them.”

In the latest developments surrounding the Middle East crisis, Iran-backed Houthi forces in Yemen claimed to have carried out a large-scale missile and drone attack on a Saudi air base in the southern city of Khamis Mushait on Monday. Moreover, Iranian Supreme National Security Council Secretary Mohsen Rezaei rejected the prospect of immediate negotiations with the US, saying that Tehran will not return to talks until its conditions are met.

This comes on top of the continued clashes in the Strait of Hormuz and keeps the geopolitical risk premium in play, supporting crude oil prices and the Greenback. Traders, however, might wait for the crucial Fed rate decision on Wednesday before placing fresh bullish bets on the USD. Adding to this, the European Central Bank's (ECB) hawkish outlook could offer some support to the Euro and help limit deeper losses for the EUR/USD pair.

EUR/USD daily chart

Technical Analysis

The EUR/USD pair keeps a bearish tone below the 100-day and the 200-day SMAs. However, sellers may need a clean break of the 50.0% Fibonacci retracement at about 1.1533 of the latest swing to extend the decline to the 61.8% retracement near 1.1491. Deeper cushions are seen at the 78.6% level at 1.1430 and the prior swing low region around 1.1353.

On the topside, immediate resistance emerges at the 100-day SMA around 1.1555, ahead of the 38.2% retracement at 1.1575. However, a more substantial cap is seen into the 23.6% level at 1.1628 and the 200-day SMA close to 1.1633, which together define a dense barrier that would need to be reclaimed to ease the current bearish bias.

(The technical analysis of this story was written with the help of an AI tool. Know more.)