The EUR/USD Is Near Its Greatest Level Since August, Approximately In The Mid-1.0900 Range

During Tuesday's Asian session, the EUR/USD pair enters a bullish consolidation phase and oscillates in a narrow trading band just below the mid-1.0900s, which is the highest level since August 14 was reached the day before.

The US Dollar (USD) continues to trade at a low level, approaching its lowest level in over two months, as the notion that the Federal Reserve (Fed) has concluded its policy-tightening campaign gains traction. Indeed, the markets have already factored in the likelihood of further interest rate increases and are anticipating that the US central bank may shortly initiate a reduction in rates. In the interim, anticipations regarding the Federal Reserve's forthcoming policy course of action driven the benchmark 10-year US government bond yield to its lowest level in two months. In addition to this, the risk-on environment is perceived to be detrimental to the safe-haven dollar and provide a tailwind for the EUR/USD pair.

However, Fed officials have not ruled out the possibility that additional rate increases may be necessary in response to a shift in economic data. Indeed, Thomas Barkin, president of the Richmond Fed, predicted on Monday that inflation will likely persist unabatedly, compelling the central bank to maintain elevated interest rates for a longer duration than what investors presently expect. Consequently, this increases the level of unpredictability regarding the precise moment the Federal Reserve will commence implementing rate reductions. The minutes of the FOMC meeting, which are expected to be released later during the US session on Tuesday, will therefore be attentively examined for indications of the Fed's future policy direction.

In turn, the outlook will dictate which direction the dollar and the EUR/USD pair will follow. Recent hawkish remarks by European Central Bank (ECB) officials, which contradicted expectations for early rate cut wagers, should provide support for the major as we approach the key event risk. Joachim Nagel, president of the Bundesbank, stated on Friday that initiating interest rate cuts prematurely would be imprudent. Furthermore, according to ECB policymaker Robert Holzmann, it is premature to implement a rate reduction in the second quarter. This indicates that market prices are likely to encounter minimal resistance on the upside.

Tuesday sees the publication of no market-moving macroeconomic data from the Eurozone, leaving the EUR/USD pair vulnerable to the USD price dynamics. In contrast, the US economic agenda includes Existing Home Sales data, which may not offer much of a boost in anticipation prior to the appearance of ECB President Christine Lagarde at an event in Berlin and the release of the crucial FOMC meeting minutes. However, the fundamental environment mentioned above provides support for bullish traders, implying that any significant corrective decline could be perceived as a purchasing opportunity and is more likely to be contained in scope.