The EUR/USD pair rebounds from two-year lows, supported by a weakening USD and reports of a gradual tariff increase plan by President-elect Trump's economic advisors. The divergent monetary policy outlook between the Fed and ECB, coupled with upcoming US economic data, influences the pair's near-term trajectory.
The EUR/USD pair experienced a modest recovery on Tuesday, bouncing back from a two-year low reached on Monday. This uptick was fueled by a slight weakening of the US Dollar (USD) and reports suggesting that President-elect Donald Trump's economic advisors are considering a gradual increase in tariffs. This approach, aimed at strengthening negotiating leverage and mitigating inflationary spikes, led to a decline in US Treasury bond yields and dampened the USD's strength.
Easing concerns about disruptive trade tariffs under Trump's second term also contributed to investor confidence, reflected in positive market sentiment surrounding equity markets. This further weakened the safe-haven Greenback, providing some support to the EUR/USD pair. However, the Federal Reserve's (Fed) hawkish stance in December, coupled with the robust US Nonfarm Payrolls (NFP) report, reinforced expectations that the Fed will halt its rate-cutting cycle later this year. This divergence in monetary policy between the Fed and the European Central Bank (ECB), which is poised to continue lowering interest rates amidst concerns about the Eurozone economy, capped gains for the EUR/USD pair.Traders remain cautious about placing aggressive bullish bets on the shared currency, keeping the EUR/USD pair below the 1.0300 psychological level. Market participants are now awaiting the release of the US Producer Price Index (PPI) and the crucial Consumer Price Index (CPI) due on Wednesday. These data points will significantly influence USD demand and provide further direction for the currency pair. Technically, the EUR/USD pair's intraday rally encountered resistance near the 38.2% Fibonacci retracement level. Sustained strength beyond this level could propel the pair towards 1.0340, followed by 1.0400 and 1.0435. Conversely, a break below the daily low could lead to a decline towards 1.0200 and potentially test the two-year low of 1.0180
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