Euro declines below 1.1600 on US-Iran war worries

The EUR/USD pair loses traction to around 1.1575, snapping the three-day winning streak during the early European session on Tuesday. The Euro (EUR) edges lower against the US Dollar (USD) as traders remain cautious about the US-Iran conflict and the closure of the Strait of Hormuz. 

Reuters reported on Tuesday that the UK Maritime Trade Operations (UKMTO) said that it has received a report of an incident in the critical waterway. UKMTO said that a company security officer has reported that the vessel was struck by an unknown projectile while conducting an outbound transit of the strait. 

On Monday, US President Donald Trump said that he is not interested in renewing the expiring agreement with Iran. Meanwhile, Iran’s Foreign Ministry spokesman Esmail Baghaei stated that a deal has been elusive due to security complexities and the “obstructionist behavior of destructive elements,” adding that the US must remove its blockade.

Ongoing tensions in the Middle East could boost a safe-haven currency such as the Greenback and act as a headwind for EUR/USD in the near term. However, lower bets for a September Federal Reserve (Fed) rate hike following soft US economic data might weigh on the USD. 

Data showed last week that US Retail Sales dropped in July for the first time in nine months, following unexpected job losses last month and tame inflation figures. Traders expect a 35% odds of a rate hike at the Fed's September meeting, compared to 47% a month earlier, according to the CME FedWatch tool.

Euro support underpinned by Eurozone resilience and narrowing US yield gap

Strategists at Scotiabank highlight that the recent “firming trend in the EUR reflects economic resilience in the Eurozone despite headwinds from energy and drought conditions as well as the narrowing yield spreads between the Eurozone and the US.” They note that this combination of solid underlying activity and a reduced rate disadvantage versus the US is helping to sustain demand for the single currency.

Technical Analysis: EUR/USD keeps a bullish vibe above the key SMA

In the daily chart, EUR/USD holds a modest bullish near-term bias as spot consolidates around the daily opening pivot at 1.1573 while remaining supported by the 100-day simple moving average (SMA) just below. Price also stands above the 20-day Bollinger middle band near 1.1498, reinforcing a constructive tone, while the Relative Strength Index (14) at 62 suggests firm but not extreme upside momentum.

On the topside, initial resistance is located at the 20-day Bollinger upper band around 1.1642, where buying pressure could start to fade. On the downside, immediate support is seen at the 100-day SMA at 1.1570, followed by the Bollinger middle band near 1.1500 and the lower band around 1.1355, which together define a broader demand zone if a deeper pullback unfolds.