EUR/USD Price Forecast: Softens to near 1.1350 as bearish bias holds below key averages

On Tuesday morning, the EUR/USD currency pair was trading near 1.1350, exhibiting a bearish bias as it dipped below key averages. The Euro had weakened to a four-month low against the US Dollar, driven by higher US Treasury yields and hawkish statements from Federal Reserve officials. Market expectations of future Fed rate hikes surged after several officials indicated additional rate increases might be necessary to combat persistent high inflation.

A recent CME FedWatch tool survey indicated a 70.3% probability of a quarter-point rate increase at the upcoming October meeting, with some forecasting four rate hikes over the next year. Societe Generale's analysts noted that the Euro had been steadily pressured this year, with consensus forecasts dropping from 1.20 to a more cautious 1.16.

They believe the current market sentiment, though still bearish, may be even more pronounced than official forecasts suggest. Looking ahead, the macro environment could challenge current levels, with high inflation and robust economic data potentially pushing the Dollar Index towards a near-2026 high or EUR/USD towards a new low.

Fed Governor Michael Barr echoed the same sentiment, stating that further policy adjustments may be necessary to control inflation. The FXS Fed Sentiment Index, which gauges market expectations of Fed policy shifts, slipped slightly to 146.89, indicating a modest decrease in perceived hawkishness despite the governor's more hawkish tone during his recent speech.

Technical indicators suggest a bearish near-term bias for EUR/USD, with the pair currently trading below the 100-day simple moving average and the Bollinger middle band. The Relative Strength Index (14) remained in oversold territory, suggesting the sell-off may continue in the short term. Support levels were identified around 1.1315, with a clear break below potentially triggering a cascade towards the May 2025 lows.