FUNDAMENTAL OVERVIEW USD:The US dollar weakened on Friday despite a higher than expected monthly core inflation reading. It was a strange reaction, as the data boosted expectations for a Fed rate hike, with traders now pricing in a 93% chance of an increase tomorrow. Moreover, surging oil prices continue to add inflationary pressure and, given no end in sight, it could make the Fed even more hawkish going forward. The odd reaction was eventually faded and the greenback rose to a new weekly high.Looking ahead, the focus will be on the FOMC decision tomorrow, with the Fed expected to hike rates by 25 bps. This would be the first hike since 2023. Traders will be attentive to any hawkish surprises, as these could give the US dollar a strong boost on a more hawkish repricing of interest rate expectations. The other major focus will be the developments in the Middle East, as oil prices continue to rise and fuel inflation concerns amid worsening disruptions and supply fears. Oil prices have been the key driver of markets recently, so any de-escalation in the Middle East could push oil prices lower and lead to a dovish repricing, which could weigh on the greenback.For now, I think the fundamentals are more positive for the dollar and we would likely need a de-escalation in the Middle East or a dovish Fed to change the picture. EUR:On the EUR side, the ECB delivered a 25 bps rate hike last Thursday, taking the deposit rate to 2.50% as widely expected. The more hawkish takeaway came from the inflation outlook and the ECB's growing concern that the Middle East-driven energy shock could keep price pressures elevated for longer. The ECB now sees headline inflation at 3.0% in 2026 and 2.5% in 2027, with both the 2027 and 2028 inflation forecasts revised higher. The decision also came with a stronger growth assessment, with the ECB upgrading its 2026 and 2027 growth forecasts as the euro-area economy has proved more resilient than expected. This gives policymakers somewhat more room to keep tightening despite the inflation shock. The most important development came after the decision. ECB sources indicated that policymakers are already discussing another hike as early as the October meeting if energy prices remain elevated and inflation risks continue to broaden. This increased expectations for a rate hike in October, with markets pricing in a 66% chance. Lagarde herself did not pre-commit to October though, stressing a data-dependent, meeting-by-meeting approach. EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAMEOn the daily chart, we can see that EURUSDbroke below the key 1.1560 support and stalled around the lower bound of the falling channel. If we get a pullback into the upper bound of the channel, we can expect the sellers to step in there with a defined risk above the upper bound to position for a drop into the 1.1400 support. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into the 1.1711 level next.EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAMEOn the 4 hour chart, we have a downward trendline defining the bearish momentum. If we get a pullback, the sellers will likely lean on the trendline with a defined risk above it to keep targeting new lows. The buyers, on the other hand, will look for a break higher to pile in for a rally into the upper bound of the channel. EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAMEOn the 1 hour chart, there’s not much we can add here as the sellers will have a better risk to reward setup around the downward trendline, while the buyers will need a break above it to gain more conviction for further upside. The red lines define the average daily range for today.UPCOMING CATALYSTSTomorrow, we have the FOMC rate decision. On Thursday, we get the US Jobless Claims figures. Traders will also keep a close eye on developments in the Middle East. This article was written by Giuseppe Dellamotta at investinglive.com.