Euro treads water against US Dollar as traders await US CPI

• EUR/USD trades around 1.1535 on Tuesday, posting a modest 0.06% decline on the day.
• Hopes for a swift agreement between the US and Iran are fading, while higher Oil prices weigh on the Euro.
• Investors remain cautious ahead of US inflation data due on Wednesday.

EUR/USD trades around 1.1535 on Tuesday at the time of writing, posting a modest 0.06% decline on the day. The pair is moving further away from its recent seven-week high of 1.1581 as the stalemate in negotiations between the United States (US) and Iran keeps geopolitical tensions elevated and supports Oil prices.

Washington and Tehran are struggling to reach a compromise that would allow the full reopening of the Strait of Hormuz, a key waterway for global energy trade. Reciprocal demands for compensation over war damages are reducing hopes for a swift peace agreement, while shipping traffic through the strait remains severely restricted.

Prospects for de-escalation have deteriorated further after Iran ruled out the possibility of fresh negotiations with US President Donald Trump. According to reports citing Iranian media, Tehran intends to wait until Trump's term ends on January 20, 2029, before considering a return to the negotiating table.

Disruptions also persist in the Bab el-Mandeb Strait, adding to concerns over key shipping routes in the region. Against this backdrop, Oil prices are moving higher, with the West Texas Intermediate (WTI) US Oil trading around $82.50 at the time of press.

Higher energy costs are a negative factor for the Euro (EUR), as the Eurozone remains heavily dependent on energy imports. A prolonged period of elevated Oil prices could increase cost pressures and weigh on the region's growth outlook.

Across the Atlantic, the US Dollar (USD) finds some support from hawkish comments by Cleveland Federal Reserve (Fed) President Beth Hammack. Hammack said on Monday that current monetary policy “is not hurting the economy” and that she expects more than one interest rate hike will be needed to bring inflation back toward the target.

The comments come as investors remain divided over the Fed's next monetary policy decision in September. Attention now turns to the US Consumer Price Index (CPI) data for July, due on Wednesday, which could provide fresh clues about the interest rate outlook.

Headline inflation is expected to ease to 3.4% YoY in July from 3.5% in June. Core inflation, meanwhile, is expected to fall to 2.5% YoY from 2.6% in the previous month. An upside surprise could reinforce expectations of tighter monetary policy and provide further support to the US Dollar, while softer figures could put the currency under renewed pressure.

Euro volatility sinks as EUR/USD stays pinned in tight pre-CPI range

Analysts at ING highlight the increasingly subdued trading backdrop, noting that "EUR/USD realised volatility continues to sink and one-year is now at 5.8% – matching the low from November 2024." They add that "it is hard to see that environment changing anytime soon – or at least until mid-September when central bankers around the world return from their summer breaks," reinforcing the view that near-term price action is likely to remain constrained.

ING also flags positioning risks on the European side, referencing recent work on "the dollar hedge ratios of European investors." The bank cautions that "the risk here is that European investors in the US are once again underhedged and have to quickly raise their dollar hedge ratios should the Dollar look vulnerable again," a dynamic that could influence flows if sentiment toward the Dollar shifts.

Against this backdrop, ING judges that "it is hard to see EUR/USD trading much outside a 1.1515-1.1560 range today," underscoring the narrow intraday parameters. Strategists at Societe Generale share a similar view, observing that the Euro has "trimmed NFP gains for a second day after running into resistance at 100dma (1.1567)" and characterising conditions as a "rangebound session today ahead of US CPI tomorrow." Societe Generale sets out the broader technical framework with "support 1.1500, resistance 1.1625," suggesting that sizeable option interest and key moving averages are likely to keep EUR/USD anchored in the near term.

EUR/USD technical analysis

In the one-hour chart, EUR/USD trades at 1.1537, holding a mildly bearish near-term bias as it sits under the 100-period simple moving average (SMA) at 1.1542 while only marginally above the 200-period SMA at 1.1526. Price is effectively testing the descending resistance trend line around 1.1537, suggesting the pair is capped by nearby overhead supply, with the Relative Strength Index (RSI) at 42.4 hinting at subdued momentum rather than oversold conditions.

On the topside, immediate resistance is clustered at the trend-line pivot near 1.1537, followed by the 100-period SMA at 1.1542, which would need to be reclaimed to ease downside pressure. On the downside, initial support is provided by the upward-sloping trend-line break area around 1.1527, ahead of firmer demand at the 200-period SMA near 1.1526, where a sustained break lower would likely extend the bearish phase toward lower hourly lows.

(The technical analysis of this story was written with the help of an AI tool. Know more.)