EUR/USD volatility rises ahead of Fed, ECB decisions; DXY under pressure

Foreign exchange markets are experiencing heightened volatility as traders position for a crucial week of central bank meetings. EUR/USD implied volatility has surged to 8.2%, the highest level in three months, as markets await both the Federal Reserve and European Central Bank policy decisions. The dollar index (DXY) has retreated 0.5% to 106.75, pressured by expectations of a dovish Fed pivot following softer US CPI data. EUR/USD is consolidating near 1.0500, caught between diverging monetary policy expectations. While the Fed is expected to cut rates by 25bp, the ECB is likely to maintain its hawkish stance amid persistent eurozone inflation concerns. Key levels to watch include 1.0550 resistance and 1.0450 support on EUR/USD, with a break in either direction likely to establish the pair's trend into year-end. Central bank forward guidance will be crucial for determining relative currency strength.