The EUR/USD currency pair shows signs of recovery, building on an overnight bounce from its lowest levels since November 2022. As of Tuesday, the pair attracts follow-through buying for the second consecutive day, extending its recovery towards the 1.0300 mark during European trading hours. This resurgence comes amid a modest downtick in the US Dollar and heightened anticipation ahead of the US Producer Price Index (PPI) inflation data and upcoming Federal Reserve communications.
This upward movement follows a decline that saw the EUR/USD slip to the 1.0180-1.0175 region. Reports suggest that gradual Trump-era tariffs weighed on US bond yields, contributing to the Dollar's weakening. The European Central Bank (ECB) is expected to maintain its course of reducing interest rates amid ongoing concerns over the Eurozone's faltering economy, adding another layer of complexity to the currency pair's dynamics.
Despite these positive signs, the EUR/USD's ascent hit a roadblock near the 38.2% Fibonacci retracement level of its recent downtrend. The pair's ability to sustain strength beyond this point could pave the way for surpassing the significant 1.0300 confluence, which comprises the 200-hour Simple Moving Average (SMA) and the 50% Fibonacci level. Such a breakthrough would mark a crucial development for traders closely monitoring this currency pair.
The US Dollar's pullback from its two-year highs also plays a crucial role in shaping the EUR/USD's performance. This downturn in the Dollar is partly driven by positive risk sentiment in equity markets and easing fears about disruptive trade tariffs under a potential second Trump administration. Market participants are optimistic about the possibility of avoiding a spike in inflation, evident from increased investor confidence and a generally positive tone in equity markets.
Tuesday's focus remains firmly on the US PPI data, with traders keenly awaiting insights into inflation trends that could influence the Federal Reserve's policy path. The release of this data is expected to impact USD demand and provide further impetus to the EUR/USD pair during the North American session. Looking ahead, attention will shift to the US Consumer Price Index (CPI) figures due on Wednesday, which could hold significant sway over the Fed's future policy decisions and, consequently, the currency pair's near-term trajectory.