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Today, Monday, the EUR/USD pair is recovering part of its recent losses. However, further growth of the pair is limited by escalating tensions in the Middle East, which increases demand for safe-haven currencies such as the U.S. dollar against the euro.
Over the weekend, President Donald Trump said that "many countries" are sending warships to the conflict zone and publicly urged allies to follow suit. He also warned the North Atlantic Treaty Organization about a "catastrophic" scenario if the alliance does not help unblock the Strait of Hormuz.
The market is now waiting for interest rate decisions this week from the Federal Reserve and the European Central Bank. It is expected that the Federal Reserve will keep the rate range at 3.50–3.75% at Wednesday's meeting, but inflation risks linked to energy prices are reducing expectations of a shift toward policy easing.
On the euro side, swaps indicate an acceleration of monetary policy tightening by the European Central Bank. According to data from London Stock Exchange Group (LSEG), the first interest-rate hike is now priced in for June.
From a technical perspective, on the daily timeframe the EUR/USD pair still has a bearish bias, as the important 200-day simple moving average (SMA) is flattening, ending its upward slope. However, it is worth noting that the Relative Strength Index (RSI) has entered the oversold zone, indicating the possibility of a corrective rebound while still confirming the overall bearish sentiment.
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