The EUR/USD pair renewed its yearly low yesterday, and today it continues to come under selling pressure despite attempts to recover.
Fundamental analysis indicates that the bearish sentiment remains dominant, and a decline in spot prices appears to be the most likely scenario.
On Tuesday, remarks by European Central Bank President Christine Lagarde were dovish in tone, causing market expectations of another interest rate hike in October to ease and weaken the euro, which had a negative impact on the exchange rate of the single European currency.
At the same time, the US dollar retains a bullish bias, holding near a two-month high, which is also putting downward pressure on the EUR/USD pair.
The market reacted in the short term to comments by Federal Reserve Bank of New York President John Williams, who said on Tuesday that the US central bank should not rush to take another step. However, traders still price in a probability of more than 90% of an interest rate hike by the end of the current year. The confrontation between the US and Iran is providing additional support for the dollar as a safe-haven asset, which also confirms the negative outlook for EUR/USD.
Hopes for a peaceful resolution to the conflict with Iran have become less promising after US President Donald Trump rejected a proposal for a seven-day ceasefire. In addition, there has been no significant progress this week in Qatar's efforts to restore dialogue between the US and Iran. According to assessments by US authorities, Trump may order military action against Iran after the November midterm elections.
This maintains geopolitical risks and favors the dollar bulls. However, traders should exercise caution and wait for the release of the US Personal Consumption Expenditures (PCE) Price Index data to identify better trading opportunities. The data will be published alongside the final second-quarter GDP estimate. These indicators could affect dollar dynamics and provide an impulse for the EUR/USD pair during the North American trading session.
Attention should also be focused on the important monthly US labor market statistics — the Nonfarm Payrolls (NFP) report, which is due to be released on Friday. In addition, speeches by influential members of the Federal Open Market Committee (FOMC) could provide clues about the future direction of the Fed's monetary policy. These forecasts could influence the direction of the dollar's next move.
From a technical perspective, the EUR/USD pair is showing a bearish trend despite an attempt to recover, rising slightly above 1.1350. This recovery could be limited by the 1.1380–1.1400 level and viewed as a selling opportunity. The oscillators are negative, confirming the bears' advantage. However, the Relative Strength Index is oversold, indicating a correction.
Below is a table showing the percentage changes in the US dollar exchange rate against major currencies for the current week. The dollar recorded its largest gain against the Swiss franc.