Key Moments
- EUR/USD trades near 1.1445 in early Asian dealings as the Dollar firms on a hawkish Federal Reserve stance.
- Boston Fed President Susan Collins and St. Louis Fed President Alberto Musalem both signal support for further rate hikes.
- German political uncertainty and AfD gains add pressure to the Euro, even as softer oil prices and yield spreads support fair value around 1.15.
Dollar Strength Pressures EUR/USD
EUR/USD is trading close to 1.1445 in Wednesday’s early Asian session, with the pair extending losses as the US Dollar (USD) outperforms the Euro (EUR). The move reflects a firmly hawkish tone from the US Federal Reserve and expectations that policy rates could rise further.
Market participants are also awaiting preliminary Purchasing Managers’ Index (PMI) figures from Germany, the wider Eurozone and the United States, scheduled for release later on Wednesday, which could inject additional volatility into the pair.
Fed Officials Reinforce Case for Tighter Policy
Boston Fed President Susan Collins stated on Tuesday that she backed last week’s decision by the US central bank to lift interest rates, citing concerns that inflation risks remain skewed above the 2% objective. Collins warned,
“I now see an increased likelihood of future scenarios in which inflation remains notably above 2%,” underlining her support for a more restrictive policy stance.
On Monday, St. Louis Fed President Alberto Musalem also indicated that further increases in policy rates may be required to bring inflation back to the Federal Reserve’s target.
Last week, the Fed raised its target range for the federal funds rate by 25 basis points to 3.75%-4.00%. Policymakers signaled that another move higher is anticipated before year-end. According to the CME FedWatch Tool, traders are assigning nearly an 89.2% probability to an additional US rate hike in December.
German Political Risk Weighs on the Euro
In Europe, political developments in Germany are adding to downside pressure on the single currency. The far-right Alternative for Germany (AfD) party registered strong gains in a regional election, delivering what was described as the worst regional defeat in postwar Germany for Chancellor Friedrich Merz’s conservative coalition. The outcome is seen as undermining the stability of the government and dampening sentiment across the Eurozone.
Fundamental Supports: Oil Prices and Yield Differentials
Despite the recent decline in EUR/USD, some underlying factors continue to back the Euro’s fair value. Strategists at Scotiabank highlight that the renewed drop in oil prices benefits the Euro, given the euro area’s trade position and reliance on imported energy.
They also emphasize that interest-rate differentials remain constructive for the single currency. According to their assessment, “yield spreads remain supportive, with a narrow (2Y Germany-US yield spread only) FV estimate hovering just above 1.15.”
Fed Communication Metrics Signal Persistent Hawkishness
Fed rhetoric has tilted further in the hawkish direction. Collins’s latest remarks scored 8.1/10 on the FXS Speechtracker, significantly exceeding the historical average of 6.6/10 and underscoring a stronger bias toward tightening. Her focus on an “increased likelihood” that inflation will stay “notably above 2%,” and her view that a robust labor market allows the Fed to concentrate on restoring price stability after a prolonged period of elevated inflation, align with keeping the FEDERAL FUNDS RATE in restrictive territory for an extended period.
This stance is generally supportive of the US Dollar and tends to weigh on risk-sensitive currencies. The FXS Fed Sentiment Index rose by 0.53 points to 150.49, signaling that the broader communication backdrop from the Fed remains firmly hawkish. With the index well above the neutral 100 level and Collins’s speech scoring clearly above trend, markets are interpreting continued upside risk for US yields and the Dollar as investors price in a longer stretch of restrictive policy.
Technical Picture: EUR/USD Held Below Key Moving Averages
From a technical perspective, EUR/USD maintains a bearish short-term bias on the daily chart, trading beneath both the 100-day moving average (MA) and the 20-day simple moving average (SMA) that forms the center of the Bollinger Bands. The spot rate is only marginally above the lower Bollinger band, indicating that the pair is hovering near the lower bound of its recent volatility range.
The Relative Strength Index (14) stands at 31.7, close to oversold levels, suggesting that downside momentum is stretched but not yet signaling a confirmed reversal.
| Technical Level | Indicator | Approximate Value | Implication |
|---|---|---|---|
| Immediate resistance | 100-day MA | 1.1540 | First major cap on any rebound |
| Secondary resistance | Bollinger 20-day SMA center line | 1.1562 | Reinforces resistance cluster above spot |
| Broader resistance | Upper Bollinger band | Near 1.1700 | More distant barrier to a sustained recovery |
| Immediate support | Lower Bollinger band | Around 1.1425 | Break below would likely extend the bearish trend |
On the upside, the 100-day MA at 1.1540 is the first line of resistance, followed by the Bollinger Bands’ 20-day SMA center line at 1.1562. Together these levels form a dense resistance area that would need to be overcome for a more meaningful recovery, with the upper Bollinger band near 1.1700 providing a broader ceiling.
On the downside, the lower Bollinger band around 1.1425 offers initial support. A decisive move below this threshold would likely signal continuation of the prevailing downtrend, while holding above it could encourage a consolidation phase beneath the cited moving-average cluster.
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