Ella 
In the Asian market on Tuesday, the EUR/USD was unable to continue its strong overnight rise to a four-day high, with a mildly bearish bias. EUR/USD is currently hovering below the mid-$1.0700 level, still some way off the three-month low hit last week.
The U.S. dollar has stabilized after falling sharply on Monday and now appears to have broken off a pullback to its highest levels since March, which in turn is seen as a key headwind for EUR/USD. The prospect of further policy tightening by the Federal Reserve remains supportive of rising U.S. bond yields, which, coupled with cautious market sentiment, has provided some support to the safe-haven dollar.
It is worth mentioning that the market still believes that the Fed is likely to raise interest rates by 25 basis points before the end of this year. In addition, the improved U.S. economic data released last week showed that the U.S. economy remains resilient and should allow the Federal Reserve to maintain higher interest rates for a longer period of time. This has therefore intensified the market’s concerns about economic headwinds caused by rapidly rising borrowing costs and continues to dampen optimism in the stock market.
On the other hand, the lack of clarity on the path for the European Central Bank to raise interest rates in the future weighed on the euro. Indeed, market participants remain divided over whether the European Central Bank will raise interest rates for a tenth consecutive time while inflation remains high, or pause its historic policy tightening cycle amid a bleak economic outlook for the euro zone. This further limits the upside for EUR/USD, at least for now.
Traders are now looking to Germany’s ZEW Economic Sentiment Index to provide some impetus for EUR/USD during the European session. However, focus will remain on Wednesday’s crucial US consumer inflation data and Thursday’s European Central Bank meeting, which will have a key impact on the near-term trend of EUR/USD. At the same time, against the backdrop of the above fundamentals, investors should remain cautious before making aggressive directional bets.
