"Words are silver, silence is gold," but in the currency market, sometimes nuances are enough to crash quotes. That's exactly what happened with EUR/USD. The pair plunged after Federal Reserve Chair Kevin Warsh's speech at Jackson Hole, even though he did not formally provide any direct forward guidance.

The dollar perked up as soon as Warsh suggested that the battle against inflation is not yet over. His remarks were the toughest since he took the helm at the central bank in spring, and investors interpreted them as a hint at a new rate hike. The Fed chair sees no signs that borrowing conditions are restraining the economy, and the summer slowdown in inflation did not convince him of stability in the trend.

According to CME Group data, the probability of a rate hike of 0.5 percentage points or more by December jumped from 29% to 51%, while the chances of monetary tightening in September increased to 58% from 35%. Deutsche Bank now expects two acts of monetary policy tightening, in September and December. CIBC notes the irony: while condemning forward guidance, Warsh inadvertently gave it.

Change in Rate Hike Odds for the Fed in September

However, the euro does not intend to give up without a fight. The "bulls" in EUR/USD managed to reduce losses on the rumors that the Fed chair's hawkishness was more stylistic than substantive. Nevertheless, pressure on the regional currency is increasing from several fronts.

Oil added to the nerves. The U.S. and Iran exchanged strikes for the first time in a month. U.S. troops attacked an island in the Strait of Hormuz, while Tehran retaliated with strikes on the UAE and Jordan. Brent crude surged above $90 per barrel, and European gas prices also increased. Rising energy prices threaten a new wave of inflation in the Eurozone, which spells another headache for the European Central Bank.

Meanwhile, in Germany, Chancellor Merz warned that the AfD's victory in the September 6 elections in Saxony-Anhalt would scare off international investors and affect one of the country's poorest regions. Political uncertainty is a refuge asset that capital flees from rather than seeks shelter in.

Thus, the euro finds itself between the hammer of the Fed's hawkishness and the anvil of geopolitical and domestic political risks. According to CIBC, the only real change since the July FOMC meeting is the rise in oil prices, which could prevent the Fed from taking decisive action.

Will the euro withstand this triple pressure, or will it succumb under the weight of circumstances? I doubt the answer will emerge before the situations in Jackson Hole and the Strait of Hormuz settle.

From a technical perspective, on the daily chart, EUR/USD shows a breakthrough of the first moving average and a test of the second dynamic support. If the assault on the pivot level at 1.16 is unsuccessful, it will create an opportunity to build on previously formed shorts. Target levels will be the fair value at 1.154 and the mark at 1.147.