Euro at strongest since march

The EUR/USD pair attracts some buyers for the fourth straight day and climbs beyond the 1.0900 mark – its highest level since March 21 during the Asian session on Tuesday. The uptick, however, lacks strong follow-through, warranting some caution for bulls and before positioning for an extension of the recent solid rebound from the 1.0600 round figure, or the YTD low touched in April.  

The US Dollar (USD) slides to a nearly two-month low in the wake of growing acceptance that the Federal Reserve (Fed) is on track to start cutting interest rates later this year and turns out to be a key factor acting as a tailwind for the EUR/USD pair. The US ISM PMI released on Monday pointed to a slowdown in manufacturing activity and the economy, lifting bets for an imminent Fed rate cut in September. This drag yields on the rate-sensitive two-year US government bond and the benchmark 10-year note to their lowest level since May 21, which, in turn, keeps the USD bulls on the defensive. 

Traders, however, seem reluctant to place aggressive bullish bets around the EUR/USD pair and prefer to wait on the sidelines ahead of the crucial European Central Bank (ECB) meeting on Thursday. Investors will closely scrutinize comments from ECB officials and the latest economic projections for cues about future rate cuts against the backdrop of a rise in Eurozone inflation in May. This, in turn, will play a key role in driving the shared currency and provide a fresh directional impetus to the currency pair ahead of the release of the US Nonfarm Payrolls (NFP) report on Friday.  

Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the EUR/USD pair is to the upside and any meaningful dip could be seen as a buying opportunity. Even from a technical perspective, acceptance above the 1.0900 mark could be seen as a fresh trigger for bulls and validate the near-term positive outlook for spot prices. Traders now look to Tuesday's release of German employment figures and the US macro data – JOLTS Job Openings and Factory Orders – for short-term opportunities.