EUR/USD is gaining ground on Monday, although bulls still lack confidence. At present, the pair is trading slightly above the 1.1200 psychological level, facing the influence of conflicting market drivers.
The euro is receiving support from the European Central Bank's (ECB) hawkish stance. Incoming signals indicate that a December interest rate hike remains a realistic scenario amid rising inflation risks triggered by a sharp increase in energy prices. Hopes for a diplomatic resolution to the Middle East conflict are providing additional support for EUR/USD, reducing demand for the U.S. dollar as a safe-haven currency. Reports indicate that Iranian negotiators held consultations with Qatari mediators for the third consecutive day on Sunday, seeking to make progress toward an agreement that could bring an end to U.S. and Israeli military operations against Iran. In particular, Tehran proposed a plan to restore shipping through the Strait of Hormuz within 48 hours, provided that the United States meets several of its demands.
Meanwhile, U.S. President Donald Trump described the negotiations with Tehran as "productive" but did not rule out the possibility of resuming military operations after the midterm elections scheduled for November 3. At the same time, Iran's Supreme Leader, Mojtaba Khamenei, instructed the country's senior military command to prepare for a potential resumption of hostilities with the United States and Israel and to expand Tehran's range of possible retaliatory measures.
Furthermore, Ukraine's latest attacks on Russian oil refineries continue to sustain the geopolitical risk premium. This factor, combined with expectations of a December interest rate hike by the U.S. Federal Reserve, is supporting the U.S. dollar and limiting the upward potential of EUR/USD.
According to CME Group's FedWatch tool, traders currently estimate the probability of another interest rate hike in December at approximately 75%. These expectations strengthened following the release of U.S. macroeconomic data on Thursday, which pointed to continued economic resilience and persistent price pressures. In addition, growing concerns about France's rising debt burden and the political deadlock ahead of next year's elections could also limit the upward potential of EUR/USD.
Today, traders should wait for the release of the U.S. ISM Manufacturing Purchasing Managers' Index (ISM Manufacturing PMI) to identify better trading opportunities. However, the main focus should remain on Friday's U.S. Nonfarm Payrolls (NFP) report.
From a technical perspective, EUR/USD maintains a bearish bias in the short term, trading firmly below most moving averages. The pair is currently attempting to break above the 20-day SMA. However, bearish pressure will ease only after the price moves above the 50-day EMA and 50-day SMA range. On the other hand, the nearest significant support level is located around 1.1150. If this level is tested, buyers may attempt to slow the current downward movement. Oscillators remain in negative territory, with bears maintaining the advantage.
