EUR/USD nears critical 1.1400 support amid PMIs and US-Iran talks

A look at the fundamental landscape.

On the US dollar front,

Across the board, the US dollar gained ground on Wednesday after the FOMC decision, which the market viewed as more hawkish than anticipated. As universally anticipated, the Federal Reserve raised its benchmark rate by 25 basis points in a unanimous vote. In addition, the statement dropped language that had cited supply shocks as partly responsible for elevated inflation. The Summary of Economic Projections (SEP) featured upgraded forecasts for growth and inflation, while the unemployment outlook was revised lower.

The key element was the dot plot, which indicated only one additional rate increase in 2026, with rates remaining elevated through 2027 before cuts begin in 2028. This was more accommodative than the market had priced in, which anticipated one more hike in 2026 and two in 2027.

It appears the Fed has low appetite for an extended tightening cycle, meaning that a selloff in oil prices or a deterioration in activity data could trigger a dovish repricing. Fed Chair Warsh largely echoed the remarks he made at Jackson Hole.

The market now expects a rate hike as early as October, with the implied probability sitting at roughly 54%. My guess is that this stems from Warsh's comments about wanting a more timely return to the 2% inflation target.

Attention has now shifted to the Middle East situation and incoming economic figures. Oil prices have already dropped substantially, supported by hopes of de-escalation and better supply conditions following Saudi Arabia's resumption of exports. The US-Iran meeting yesterday was characterized as constructive, although no timetable for a solution was provided. However, Trump noted that another meeting has been arranged for the very near term.

Regarding economic data, it is worth remembering that when positioning and market expectations are stretched, even a small surprise in the data can cause a major reversal. Should US data begin to disappoint, expectations of aggressive rate increases would probably diminish, leading to unwinding of US dollar long positions.

On the euro front,

The European Central Bank raised its deposit rate by 25 basis points to 2.50% at its most recent meeting, as was broadly anticipated. The more hawkish element stemmed from the inflation projections and the ECB's increasing worry that the energy shock from the Middle East could sustain higher price pressures for longer. The ECB's new forecasts show headline inflation at 3.0% in 2026 and 2.5% in 2027, with the 2027 and 2028 inflation estimates both revised upward.

The decision was accompanied by a more robust growth outlook, as the ECB upgraded its 2026 and 2027 growth projections, reflecting the euro area's stronger-than-expected resilience. This provides policymakers with additional leeway to continue tightening even in the face of the inflation shock.

The most significant development occurred after the decision was announced. ECB sources said that policymakers are already considering another rate increase as soon as the October meeting, provided energy prices stay high and inflation risks continue widening. However, ECB President Lagarde did not commit to an October move, emphasizing that the bank remains data-dependent and will assess options meeting by meeting. Consequently, traders will continue to monitor economic data releases and developments in the Middle East.

The first test is today, with the release of Flash PMI data for the main eurozone economies. A worse-than-expected reading could spark a short-term selloff on dovish repricing, but attention will then turn to the US PMI figures. If US data also underperforms, EUR/USD could see a more substantial pullback following its recent decline.

Daily chart technical view of EUR/USD

On the daily chart, EUR/USD is nearing the key support area near the 1.1400 level. Should the price reach that level, buyers are likely to intervene with a clearly defined risk just below support, positioning for a return to the 1.1560 resistance. Sellers, meanwhile, will be looking for a break below support to add to bearish positions and push toward fresh lows.

Four-hour chart technical analysis for EUR/USD

On the four-hour chart, a descending trendline is defining the bearish momentum. In the event of a pullback, sellers will likely sell into the trendline with a defined risk above it, aiming to target new lows. Buyers, conversely, will seek a break above the trendline to pile in and aim for a rally to the 1.1560 resistance, with the 1.1495 swing high as an initial target.

One-hour chart technical analysis for EUR/USD

On the hourly chart, there is little new to add: sellers have a better risk-reward setup near the downward trendline, while buyers need a break above it to enable new highs.

Upcoming market catalysts

Flash PMI data for the eurozone and the US are due today, while the Trump-Xi meeting is scheduled for tomorrow.