- EUR/USD drifted into the negative territory for the second successive day on Tuesday.
- Hawkish Fed expectations continued underpinning the USD and exerted some pressure.
- Encouraging German/Eurozone macro data failed to impress bulls or provide any impetus.
The EUR/USD pair dropped to over one-week low, around mid-1.1200s during the early European session, albeit quickly recovered a few pips thereafter. The pair was last seen trading around 1.1270 area, down only 0.10% for the day.
The pair struggled to capitalize on its modest uptick, instead met with a fresh supply near the 1.1300 mark and turned lower for the second successive day on Tuesday. This also marked the fourth day of a downtick in the previous five sessions and was sponsored by the emergence of some US dollar buying.
Investors have been pricing in the prospects for an eventual Fed liftoff in May 2022 amid worries about stubbornly high inflation. This, along with a further recovery in the US Treasury bond yields, continued underpinning the greenback and exerted some downward pressure on the EUR/USD pair.
Meanwhile, the risk sentiment remained well supported by easing fears about the economic fallout from the new Omicron variant of the coronavirus. This, in turn, held back traders from placing aggressive bullish bets around the safe-haven USD and helped limit the downside for the EUR/USD pair.
On the economic data front, German Industrial Production data, which recorded strong growth and jumped 2.8% MoM in October. Apart from this, the German and Eurozone ZEW Economic Sentiment Index surpassed market expectations and further extended some support to the shared currency.
That said, the EUR/USD pair's inability to gain any meaningful traction favours bearish traders and supports prospects for a further near-term depreciating move. Hence, a subsequent fall back towards testing sub-1.1200 levels, or the YTD low touched in November, remains a distinct possibility.
There isn't any major market-moving economic data due for release from the US on Tuesday, leaving the USD at the mercy of the US bond yields. Apart from this, the broader market risk sentiment will influence the USD price dynamics and produce some trading opportunities around the EUR/USD pair.
