EUR/USD Analysis: Reclaiming 1.0900 Amidst Positive Sentiment and Upcoming Economic Data

The EUR/USD pair is displaying renewed positive momentum for the second consecutive day on Tuesday, ascending above the 1.0900 mark during the Asian session. Currently, spot prices are positioned near a three-day peak, aiming to strengthen the recent rebound from a low of approximately 1.0845, recorded last Friday.

European Central Bank (ECB) Chief Economist Philip Lane conveyed on Friday that the Euro Zone economy is anticipated to sustain growth and unlikely to endure a substantial or prolonged recession. Consequently, this assessment has led to a narrowing of the inversion in the German yield curve, bolstering expectations of further policy tightening by the ECB. Such developments serve as a foundation for the strength of the shared currency.

Moreover, a modest depreciation of the US Dollar (USD) adds to the list of factors fostering a supportive backdrop for the EUR/USD pair.

The USD Index (DXY), responsible for monitoring the performance of the Greenback against a basket of currencies, remains subdued below its peak level since July 12. This observation aligns with the ongoing market sentiment, which anticipates the Federal Reserve (Fed) to halt its cycle of rate hikes in September. However, it’s essential to recognize that incoming US economic data continues to reflect an exceptionally resilient economy, maintaining the possibility of another 25 basis points rate hike by the end of the year. This expectation serves to curb significant losses in the USD.

The prevailing notion that the Fed will persist with elevated interest rates over an extended period continues to support higher US Treasury bond yields. It’s noteworthy that the yield on the benchmark 10-year US government bond reached a 15-year high on Monday. Furthermore, a generally subdued risk sentiment aids the USD in maintaining its position slightly above the technically significant 200-day Simple Moving Average (SMA). This aspect might discourage bullish positions from adopting aggressive stances around the EUR/USD pair.

Investors are also inclined to remain cautiously positioned prior to the speeches of Fed Chair Jerome Powell and ECB President Christine Lagarde at the Jackson Hole Symposium later in the week. Additionally, market participants await the release of flash PMI prints from both the Euro Zone and the US on Wednesday. These releases will provide fresh insights into the economic conditions and the potential for further interest rate adjustments by the respective central banks.

Meanwhile, on Tuesday, traders will take cues from the Euro Zone Current Account figures’ release, followed by the unveiling of Existing Home Sales and the Richmond Manufacturing Index during the early North American session. The interplay of these factors, alongside US bond yields and broader risk sentiment, will steer the dynamics of the USD price and consequently influence short-term trading opportunities surrounding the EUR/USD pair.