Euro Under Pressure as Firm Dollar Drives EUR/USD Lower

Key Moments

Dollar Strength Keeps EUR/USD Under Pressure

The EUR/USD pair continued to face selling pressure for the fourth session in a row during Asian trading on Tuesday, remaining below the mid-1.1500 area and holding just above the one-month low set the previous day. The overall environment continues to favor further downside for the pair.

The U.S. Dollar maintained a firm tone ahead of the two-day FOMC policy meeting, which begins later on Tuesday, as several supportive factors combined to lift the currency and weigh on EUR/USD. Persistent expectations for additional rate hikes by the Federal Reserve, together with inflation risks linked to higher energy costs, have kept U.S. bond yields close to multi-year highs. At the same time, rising tensions between the United States and Iran have reinforced demand for the Dollar as a safe-haven asset.

U.S. Yields Approach 5% Amid Inflation Concerns

U.S. Treasury yields have been edging toward the key 5% mark. ING’s Padhraic Garvey highlighted that the Fed will be closely watching stress along the yield curve, remarking that the 10-year U.S. Treasury yield is “looking for an excuse to mark at 5%.” He noted 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 emphasized that these expectations “are not at sinister levels,” Garvey argued they “could do with some treatment from the Fed in order to at least help contain them.”

Middle East Developments Bolster Safe-Haven Demand

The geopolitical backdrop in the Middle East has further supported the Dollar. Iran-backed Houthi elements in Yemen claimed on Monday to have executed a large-scale missile and drone strike on a Saudi air base in Khamis Mushait, in the south of the country. In parallel, Iranian Supreme National Security Council Secretary Mohsen Rezaei dismissed the idea of immediate talks with the United States, stating that Tehran would not return to negotiations until its conditions are fulfilled.

These developments, combined with ongoing clashes in the Strait of Hormuz, have sustained a geopolitical risk premium, underpinning crude oil prices and reinforcing support for the Greenback. Even so, many market participants are likely to stay cautious and wait for clarity from Wednesday’s Fed rate decision before significantly extending long Dollar positions. At the same time, the European Central Bank’s hawkish policy stance could lend some underlying support to the Euro and help limit the depth of any additional EUR/USD downside.

EUR/USD Technical Picture: Bias Remains Bearish

On the technical front, EUR/USD continues to trade with a negative bias below both the 100-day and 200-day simple moving averages (SMAs). For sellers to reassert control more decisively, a clear break below the 50.0% Fibonacci retracement of the latest swing, located near 1.1533, would be needed. Such a move could open the door toward the 61.8% retracement area around 1.1491.

If the decline extends further, additional support is seen at the 78.6% Fibonacci level at 1.1430, followed by the prior swing low region around 1.1353. On the upside, initial resistance is aligned with the 100-day SMA near 1.1555, followed by the 38.2% retracement level at 1.1575. More substantial resistance is clustered around the 23.6% retracement at 1.1628 and the 200-day SMA close to 1.1633, forming a dense technical barrier that would need to be reclaimed to alleviate the current bearish structure.