EUR/USD Faces Uphill Battle Amid Fed Hawkishness and Geopolitical Risks

The EUR/USD pair nudged higher to around 1.1485 in early Asian trade on Monday, but broader market drivers suggest limited upside potential.

The Federal Reserve's decision to lift interest rates by 25 basis points at its September meeting and signal further tightening has put upward pressure on the dollar. Additionally, geopolitical tensions remain high after Iran warned of retaliation against US military bases, which could sustain safe-haven demand for the greenback.

ECB President Christine Lagarde is set to speak later in the day, which may provide some clarity on European Central Bank policy decisions. The ECB's Vice President Boris Vujcic stated that rate expectations reflect higher energy prices and that policy decisions will weigh a wider set of indicators.

The FXS Speechtracker assessed Fed rhetoric at 6.2/10 versus a 6.3/10 historical average, while the FXS Fed Sentiment Index fell 1.47 points to 150.61. Technically, EUR/USD remains below the 100-day SMA; RSI is 36.4, with support at 1.1460 and resistance at 1.1545, 1.1585, and 1.1710.

The article advises traders to protect their portfolios against a potential breakdown below the key support of 1.1460 by using short-term put options or bear put spreads. It also recommends deploying long straddles to benefit from sharp price swings due to implied volatility rising significantly in the coming weeks, particularly with Middle East tensions threatening global energy supplies.