Euro steadies below 1.1600 as hawkish Fed rhetoric limits gains

The EUR/USD pair holds steady near 1.1590 during the early Asian session on Thursday. The potential upside for the major pair might be limited amid hawkish Federal Reserve (Fed) expectations and escalating conflict in the Middle East. The US August ISM Services Purchasing Managers Index (PMI) report is due on Thursday. On Friday, traders will closely monitor the US Nonfarm Payrolls (NFP) data. 

Fed Chair Kevin Warsh warned last week that policymakers may need to tighten again if inflation fails to move convincingly towards 2%. His hawkish remarks could lift the USD and act as a headwind for the pair. Expectations of a September Fed rate hike rose to 62.3%, up from below 40% before the speech, according to the CME FedWatch tool.  

US President Donald Trump said on Wednesday that strikes on Iran would likely be short-lived, reiterating the US controls the Strait of Hormuz. Meanwhile, Supreme National Security Council Secretary Mohsen Rezaei said Washington will soon witness Tehran’s “new strategy” for war. Rising tensions in the Middle East could boost safe-haven flows, supporting the Greenback. 

Across the pond, European Central Bank (ECB) policymaker Gabriel Makhlouf said the central bank must not shy away from more interest rate hikes if inflation “starts moving in the wrong direction.” ECB Governing Council member Joachim Nagel said on Wednesday that markets see over a 95% chance of a September rate hike.

Euro sentiment sours as oil recovery revives terms of trade worries

Strategists at Scotiabank highlight that the latest bout of Euro weakness has aligned with a rebound in energy markets, noting that “the renewed deterioration looks to have coincided with the latest recovery in oil prices, sparking concerns about the euro area’s terms of trade as a major energy importer.” They suggest that the shift in commodity dynamics is undermining support for EUR even as yield spreads remain broadly favourable, reinforcing the market’s increasingly bearish tone toward the single currency.

Technical Analysis: EUR/USD is well-supported above the 100-day SMA, with neutral RSI

In the daily chart, EUR/USD sits on a pivot around the day’s opening level and holds above the 100-day simple moving average (SMA), suggesting a mild underlying bid, yet it remains capped beneath the Bollinger Bands’ middle line. The Relative Strength Index (RSI) at 51.80 is neutral, hinting that near-term momentum is balanced and leaving scope for either a modest continuation higher or further consolidation around current levels.

On the topside, initial resistance is seen at the Bollinger middle band around 1.1605, ahead of a stronger barrier at the upper Bollinger band near 1.1708. On the downside, immediate support is defined by the 100-day SMA at 1.1565, with a deeper cushion at the lower Bollinger band around 1.1500, where buyers would be expected to show more interest if the pair extends its pullback.