The EURUSD has fallen sharply as markets digest a more hawkish message from Fed Chair Kevin Warsh. The probability of a Federal Reserve rate hike has climbed to roughly 60%, up from the low-30% range earlier this week. That repricing has lifted U.S. yields and the dollar, pushing the EURUSD toward a key cluster of technical support.

As the world's most heavily traded currency pair, EURUSD is particularly sensitive to shifts in U.S. rate expectations, because higher U.S. rates tend to increase the relative return on dollar-denominated assets. The scale of this week's repricing — roughly doubling the implied probability of a hike — explains the urgency behind the dollar's bid.

Earlier in the session, the pair met willing sellers below its 100- and 200-hour moving averages. The subsequent break below the 200-day moving average, currently near 1.1630, reinforced the bearish technical bias and opened the door to the next downside targets.

Price is now testing a swing area between 1.15937 and 1.15872. Just below that zone sits the 38.2% retracement of the rally from the July low at 1.15733, together with the rising 100-day moving average near 1.1570. Together, these levels form an important cluster of support.

This is the area where buyers need to step in if they are to slow the decline. Holding the cluster could produce a corrective rotation back toward 1.16215 and the 200-day moving average at 1.16302. To regain more meaningful control, however, buyers would still need to reclaim the 100- and 200-hour moving averages in the 1.1655–1.1660 region.

Conversely, a sustained break below the 100-day moving average would deepen the bearish bias and likely encourage further selling. The next downside targets sit near 1.15578, followed by the 50% retracement at 1.15356.

As the dollar advances, yields are moving higher in tandem: the two-year yield is up 10.31 basis points to 4.335%, and the 10-year yield is up 5.2 basis points to 4.724%. Major equity indices are all in negative territory, with the NASDAQ 100 down 0.70%, the small-cap Russell 2000 down 1.21%, and the NASDAQ Composite down 0.44%. The breadth of the move — currencies, bonds, and equities all reacting together — underscores that the driver is a shift in monetary policy expectations rather than a euro-specific development.

Looking ahead, the durability of the dollar's advance will depend on how Fed policy expectations evolve from here, making subsequent Fed commentary and incoming U.S. economic data the key variables to monitor alongside the technical levels described below.

Overall, sellers remain in control, but the EURUSD has reached a technically important decision point. Buyers have a level against which they can lean and define risk. If that support fails, however, the downside door opens further. Be aware. Be prepared.

Source: Investinglive