The EUR/USD pair traded with mild gains near 1.1470 during early Asian trading hours on Tuesday, supported by renewed hopes for Middle East diplomacy and potential US-Iran talks at the United Nations General Assembly in New York. President Masoud Pezeshkian is set to lead the Iranian delegation, and US President Donald Trump indicated he would 'probably' be open to meeting his Iranian counterpart, which has provided some support to riskier assets such as the Euro against the US Dollar [1].
However, the Euro faces headwinds from rising political risks in Germany. The far-right Alternative for Germany party took first place in state elections in northeastern Germany on Sunday, while Chancellor Friedrich Merz's conservative party suffered its worst regional election defeat in postwar Germany, leaving him clinging to power. Analysts at MUFG warn that these political and fiscal developments could undermine confidence in the Euro in the near term, citing a higher risk of political instability in Germany after two more disappointing state election results for the ruling parties [1].
On the US side, hawkish rhetoric from Federal Reserve officials is also influencing the currency pair. Chicago Fed President Austan Goolsbee stated that US inflation may now be driven by strong demand, potentially requiring a faster pace of Fed rate increases. St. Louis Fed President Alberto Musalem echoed this sentiment, suggesting that the US central bank will likely need to hike interest rates further to lower inflation resulting from strong demand and a commodity price shock that has moved beyond oil [1].
From a technical perspective, EUR/USD maintains a bearish near-term tone, trading below the 100-day simple moving average (SMA) and the Bollinger middle band. The pair is only slightly above the lower Bollinger band, with the Relative Strength Index (RSI) around 34.5, indicating persistent but not yet extreme downside pressure. Initial resistance is seen at the 100-day SMA at 1.1545, followed by the Bollinger SMA centerline at 1.1575, and the upper Bollinger band near 1.1705 [1].
CONCLUSION
The Euro's modest gains above 1.1450 are tempered by significant political risks in Germany and hawkish signals from the US Federal Reserve. While hopes for Middle East diplomacy provide some support, analysts caution that ongoing instability in Germany could further weigh on the Euro in the near term.