FX.co ★ EUR/USD

Market Analysis and Insights: EUR/USD is trading under renewed pressure after failing to sustain the recent recovery toward the upper 1.16 area. The pair closed around 1.1580 on Friday after the U.S. dollar strengthened sharply following Federal Reserve Chair Kevin Warsh's Jackson Hole comments. The latest move has shifted short-term sentiment toward the dollar as markets increased expectations for a possible September Fed rate hike. At the same time, the euro retains some fundamental support because the European Central Bank is also moving toward tighter policy in response to persistent inflation. Energy prices, Middle East geopolitical risks, global growth concerns and safe-haven demand remain important volatility drivers. Short-term bias: moderately bearish below 1.1625, although oversold conditions increase the risk of a corrective rebound. Fundamental Analysis: The euro's fundamental outlook has improved compared with earlier expectations of prolonged monetary easing, but the recovery is increasingly complicated by the inflation-growth trade-off. Euro-area inflation reached 2.9% in July, up from 2.8% in June, largely reflecting higher energy costs associated with the Middle East conflict. Inflation remains substantially above the ECB's 2% target, and this has strengthened expectations that policymakers will raise rates again in September. Recent ECB accounts showed that policymakers believed another increase could be necessary to contain the inflation effects of the energy shock. Market expectations have consequently moved toward another 25-basis-point increase, which would lift the deposit rate to around 2.50%. However, the euro does not have a completely bullish fundamental environment. Higher energy prices represent a negative terms-of-trade shock for the euro area because Europe is highly dependent on imported energy, while geopolitical uncertainty can weaken consumer confidence and investment. The ECB has already warned that the Iran conflict hit household consumption particularly hard during its initial phase. At the same time, French preliminary inflation accelerated to 2.7% in August from 2.4% in July, reinforcing the view that inflationary pressure is broadening beyond energy alone. ECB officials have therefore been placed in a difficult position: tighter policy can support the euro through higher yields, but excessive tightening could weaken already modest economic growth. The U.S. dollar's fundamental position has strengthened considerably during the past several sessions. The key catalyst has been the Federal Reserve's increasingly firm approach toward inflation. U.S. PCE inflation rose to 3.7% year over year in July, while stronger consumer spending and income data supported the argument that the economy still has enough momentum to tolerate restrictive monetary policy. Warsh's Jackson Hole remarks reinforced this interpretation by indicating that further policy action may be necessary if inflation does not move convincingly toward the Fed's 2% objective. Following his speech, the probability of a September rate increase jumped from roughly 35% to above 55%, while the U.S. two-year Treasury yield climbed to around 4.36%. This creates an important yield advantage for the dollar against the euro in the short term. Rising U.S. Treasury yields increase the opportunity cost of holding lower-yielding euro assets, encouraging capital toward dollar-denominated bonds and money-market instruments. The dollar also benefits when geopolitical uncertainty produces a flight toward liquid safe-haven assets. Nevertheless, the bullish dollar case has limitations. U.S. labor-market conditions have weakened, and the next employment and inflation reports could rapidly alter expectations for September. If upcoming employment data disappoints or inflation begins falling more convincingly, current Fed-hike expectations could unwind and generate a strong EUR/USD recovery. Conversely, evidence of persistent inflation would reinforce the current dollar advantage. D1 Chart Technical Analysis – Price Structure and Key Levels Pure price action currently favors sellers. EUR/USD recently failed to maintain its recovery and has fallen toward 1.1581, with Friday's market action confirming a decisive dollar rebound. The broader recent range has been approximately 1.1580–1.1750, but the inability to hold the higher part of that range has weakened the bullish structure. Immediate support is concentrated around 1.1575–1.1580, followed by the psychologically important 1.1550 area. A daily close below 1.1550 would increase the probability of a deeper correction toward 1.1500–1.1520, while a sustained break beneath that region could expose the 1.1450–1.1470 zone. On the upside, initial resistance is positioned around 1.1595–1.1600, followed by 1.1625–1.1640. A recovery above 1.1640 would begin to neutralize the immediate bearish structure, while a move through 1.1680 would provide stronger evidence that buyers are regaining control. The recent decline has produced a series of lower short-term highs, indicating seller dominance, but the proximity of major support means aggressive downside chasing carries reversal risk. The current price area is therefore a critical decision zone for both buyers and sellers.

The daily technical indicators reinforce the short-term bearish bias, although several momentum gauges are now deeply oversold. The latest readings show RSI(14) near 23.3, while Stochastic is around 9.7 and Williams %R is near -94.9. These readings indicate powerful downside momentum but also warn that EUR/USD has entered an area where a technical rebound can develop quickly. MACD is approximately -0.002, confirming negative momentum, while ADX is around 46, showing that the current directional movement has significant strength. ATR(14) is approximately 0.0014, equivalent to roughly 14 pips, reflecting elevated but not extreme daily volatility. Moving averages provide an even clearer bearish signal: the 10-day SMA is around 1.1607, the 20-day around 1.1627, the 50-day near 1.1641, the 100-day around 1.1653, and the 200-day near 1.1655. Price is therefore below the entire major moving-average structure, indicating that sellers currently control the short-term trend.