Euro consolidates above 1.1350, seems vulnerable near late July lows amid bullish USD

The EUR/USD pair is seen consolidating around the 1.1365-1.1370 region during the Asian session on Tuesday and trading near its lowest level since July 28, touched the previous day. Traders now seem hesitant and opt to wait for further developments surrounding the Middle East crisis before placing fresh directional bets.

US President Donald Trump rejected an Iranian proposal to end fighting and reopen the Strait of Hormuz immediately on meeting their terms. However, media reports suggested that Trump was ready to ease sanctions on Iran and release its frozen assets in exchange for concrete progress on the country's nuclear program. Nevertheless, the broader fundamental backdrop seems tilted in favor of US Dollar (USD) bulls and suggests that the path of least resistance for the EUR/USD pair is to the downside.

The US Federal Reserve (Fed) projected another rate increase by the end of this year after delivering the widely expected 25 basis points (bps) hike for the first time in over three years earlier this month. Moreover, energy-driven inflationary concerns underpin prospects for additional Fed tightening, which continues to push US bond yields to multi-year highs. This, in turn, assists the USD to stand firm near a two-month high, touched last Thursday, and validates the negative outlook for the EUR/USD pair.

Meanwhile, the European Central Bank (ECB) President Christine Lagarde told a European Parliament committee on Monday that a measured policy response remains appropriate as there's no evidence at this stage of energy prices feeding into higher wages. Lagarde's attempt to push back on market bets for a more aggressive rate-hiking cycle should keep Euro bulls on the back foot, warranting caution before confirming that the EUR/USD pair has bottomed out and positioning for any meaningful recovery.

EUR/USD daily chart

Technical Analysis

The EUR/USD pair’s near-term tone remains bearish, though a convincing break below the 1.1350 horizontal support is needed to back the case for further losses. Spot prices might then drop to the year-to-date low, near 1.1325 touched in June, en route to 1.1300.

On the top side, any attempted recovery is more likely to attract fresh sellers near the 1.1460 supply zone, which, if cleared, could lift the EUR/USD pair beyond the 1.1500 psychological mark, though it is likely to remain capped near the 200-day SMA at 1.1557.