The EUR/USD pair closed the week below 1.1500, not far above a fresh multi-week low of 1.1454. The US Dollar (USD) rallied following the Federal Reserves (Fed) monetary policy announcement, the sole market catalyst this past week.
United States Federal Reserve hits the up button as the Middle East crisis intensifies
The United States (US) Fed decided to hike the benchmark rate by 25 basis points (bps), setting the Fed Funds Target Range (FFTR) to a 3.75%–4.00% range, to no one‘s surprise. Inflation in the world’s largest economy has been running above the central banks goal since March 2021, and while price pressures eased through 2025, the new year brought new challenges.
Concerns about US President Donald Trump‘s tariffs weighing on price pressures were quickly overshadowed by a global energy supply crisis, created by Trump itself. What started as an Iran-Israel war evolved into a regional war in the Middle East that interrupted sea traffic through the Strait of Hormuz. Before the conflict, roughly 25% of the world’s crude Oil and petroleum products went through the sea passage, while over 80% of it supplied Asian countries.
The crisis, however, was far from contained within the Persian Gulf. Scarce Oil supply led to skyrocketing prices, and hence, higher Oil prices. At this point, the conflict is entrenched, without a resolution in sight, but rather expanding. Markets priced in Oil prices will remain elevated. Investors also priced in central banks going for tighter monetary policies.
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In such a scenario,a Fed interest rate hike would have been long pricedin and would have had no impact on the US Dollar (USD), as it actually did. And that‘s because no matter the logic of the decision, market players were doubting whether Chair Kevin Warsh and co were to deliver. Doubts came from Chair Warsh’s decision to cut off forward guidance, but also from President Trump, who has long been demanding rate cuts.
“Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World,” Trump declared through Truth Social after the announcement. “LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!” he added, blaming the Governors Board, not Warsh, for the decision.
The Fed not only hiked rates, but, according to the Summary of Economic Projections (SEP), the odds for additional hikes before year-end increased, despiteChair Warshs refusal to provide any clueon the matter. The only thing that Warsh clarified was his determination to return inflation to 2%. Whether his future actions will support his words is yet to be seen, as he already did enough to displease Trump.
Attention returns to Oil
With major central banks out of the way, the market‘s attention will return to Oil and the Middle East. Generally speaking, higher Oil prices will lead to mounting inflationary pressures and hence spur speculation of higher interest rates. The USD may find extra support in one more rate hike, but as market participants accept the ’new normal,‘ reactions to central banks’ decisions will be more and more limited, just as with the latest European Central Bank (ECB) decision: hiking interest rates by 25 bps was not enough to put the Euro on a bullish path.
The macroeconomic calendar has little to offer, butmultiple speakers from both the Fed and the ECB are scheduled throughout the week. On Wednesday, S&P Global, alongside local banks, will publish the preliminary estimates of the September Purchasing Managers Indexes (PMIs) for most major economies.
Dollar momentum cools as oil steadies but Fed hawkishness keeps upside risks alive
Strategists at ING note that “moderating oil prices have taken the edge off the Dollar‘s post-FOMC momentum,” with energy markets appearing to gain some optimism that Tuesday’s reported meeting between US President Donald Trump and the Gulf States during the UN General Assembly “could yield some clarity about plans for the region.” ING highlights that media speculation also points to Trump “nearing a major decision on whether to escalate military operations or pursue an end to the conflict,” developments that are helping to shape near-term moves in energy and FX markets.
Despite the softer tone in the Dollar, ING adds that “we still see upside risks for the Dollar as the Federal Reserve‘s hawkish message on Wednesday has, in our view, given the green light to markets to fully price in a hike in October if data and energy prices suggest so,” underscoring the importance of incoming data and oil dynamics in driving expectations for the Fed’s next move.
EUR/USD Technical Outlook:
The EUR/USD pair trades around the long-term critical price zone of 1.1470 and is bearish, according to the daily chart. Spot develops below all its moving averages, with the 100-day Simple Moving Average (SMA) at 1.1548, the 20-day SMA at 1.1593, and the 200-day SMA at 1.1629 acting as dynamic resistances while gaining downward traction. Technical indicators, meanwhile, turned back south after modest upticks within negative territory, hinting at persistent downside pressure even as conditions edge toward oversold.
On the weekly chart, EUR/USD also shows a bearish bias as it slipped below the 20-week SMA at 1.1543 while remaining above the 100- and 200-week SMAs at 1.1349 and 1.1087, respectively. Meanwhile, technical indicators gain downward traction, with the Relative Strength Index (RSI) heading firmly south at around 44, reflecting mounting selling pressure and hinting at lower lows ahead.
On the downside, immediate support aligns with the current weekly low in the 1.1450 region, ahead of the 100-week and the 20-day SMA converging around 1.1350. The pair bottomed in this area in July, so a clear break of the latter opens the door to a steeper decline. On the topside, the 20-week SMA at 1.1543 acts as the first resistance level, followed by the 1.1600 region. Sustained gains beyond the 200-day SMA at 1.1629 will bring back buyers, who could attempt a retest of the August high at 1.1710.