Euro edges lower amid reviving USD demand; holds above 1.1200 ahead of Fed's Warsh

• EUR/USD struggles to capitalize on the previous day’s strong gains amid reviving USD demand.
• Fed hike bets, stable US bond yields and geopolitical risks underpin the safe-haven Greenback.
• Concerns over France’s debt crisis also cap the Euro as traders await Fed Chair Warsh’s speech.

The EUR/USD pair edges lower during the Asian session on Friday, retreating further from the weekly high, around the 1.1240 region, touched the previous day. Spot prices, however, lack follow-through selling and hold above the 1.1200 mark as traders await US Federal Reserve (Fed) Chair Kevin Warsh's speech before placing fresh directional bets.

Warsh's remarks at the Annual Meetings of the International Monetary Fund (IMF) and World Bank Group, in Bangkok, will be scrutinized for more cues about the Fed's future policy path. The outlook, in turn, will influence the US Dollar (USD) price dynamics amid firming expectations for at least one Fed rate hike move this year and provide some meaningful impetus to the EUR/USD pair.

The hot US Consumer Price Index (CPI) and Producer Price Index (PPI) reports, released this week, reaffirmed bets that the US central bank will raise borrowing costs again in December. Moreover, US bond yields now seem to have stabilized following the overnight slump, which, along with geopolitical uncertainties, revived demand for the safe-haven USD and weighed on the EUR/USD pair.

UOB sticks to Fed pause in October before resuming hikes into 2027

Economists at UOB Group acknowledge that markets have "increased the probability of an Oct rate hike," but they continue to see the Fed remaining on hold at the upcoming FOMC meeting. They argue that the October decision is likely to be constrained "due to the proximity to the midterm elections" and "heightened event risk," with their base case that "the Fed will remain on pause for Oct FOMC."

Beyond October, UOB expects the hiking cycle to resume, projecting "a 25bps hike in Dec 2026 and another in 1Q 2027," or in their alternative formulation, "a 25-bps rate hike in Dec 2026 FOMC and another hike in 1Q-2027." After that, the bank anticipates the Fed will "be on hold for the rest of 2027" and "keep policy on pause for the rest of 2027."

In the latest developments around the Middle East crisis, the Iran-backed Houthi group carried out a deadly missile attack on the presidential palace in the Yemeni government's interim capital of Aden. This comes on top of escalating tensions between Houthis and Saudi Arabia, which, along with the US-Iran standoff over the Strait of Hormuz, backs the case for further USD appreciation.

The shared currency, on the other hand, might continue to struggle to find meaningful buyers amid concerns about France's growing public debt and budget deficit crisis. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the downside and warrants caution before positioning for an extension of a modest recovery from a 17-month low, touched on Wednesday.

EUR/USD 4-hour chart

Technical Analysis

The EUR/USD pair maintains a bearish near-term tone beneath the 100-period Simple Moving Average (SMA) on the 4-hour chart. Moreover, spot prices remain below the 23.6% Fibonacci retracement level, suggesting that rebounds are likely to be capped. On the downside, the primary support is located at the recent cycle anchor near 1.1114, where a break would open the way for a deeper slide in the coming sessions.

On the topside, immediate resistance is seen at the 23.6% retracement at 1.1254, followed closely by the 100-period SMA at 1.1264, while further barriers line up at the 38.2% level at 1.1341 and the 50.0% retracement at 1.1411, reinforcing the overarching bearish framework as long as these ceilings remain intact.

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