During Thursday's Asian session, the EURUSD currency pair remained within a tight trading range, reflecting its recent advances that propelled it to a two-and-a-half-week high on the previous day. Currently, spot prices are positioned below the mid-1.0900s, influenced by the intricate movements of the US Dollar (USD).
Support near the significant 200-day Simple Moving Average (SMA) is bolstering the USD Index (DXY), which tracks the USD's performance against a basket of currencies. This pause in its retreat from a nearly three-month peak stands as a significant element lending support to the EUR/USD pair. However, expectations of the Federal Reserve (Fed) adopting a more lenient stance on rate hikes might mitigate substantial USD gains and restrict its potential decline.
The current market sentiment is leaning towards the belief that the US central bank will adopt a less aggressive approach, a sentiment reinforced by underwhelming US macro data unveiled on Wednesday. The ADP employment report, which disclosed a modest addition of 177K jobs by US private-sector employers in August, significantly lower than the revised figure of 324K from the previous month, contributes to this sentiment. Additionally, the second GDP estimate reveals a 2.1% annualized expansion of the US economy in the second quarter, compared to the initial reading of 2.4%.
Conversely, the Euro (EUR) could continue reaping the rewards of resurging expectations for further interest rate hikes by the European Central Bank (ECB). This sentiment gained traction after Germany's consumer inflation data indicated a 6.4% year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for August, surpassing the projected 6.2%. Furthermore, core inflation, excluding volatile items, remained steady compared to July.
The current fundamental landscape supports the potential for dip-buying around the EUR/USD pair. This suggests a cautious approach is warranted before determining whether the recent recovery from its lowest point since June 13 has reached its peak. In the near future, investor focus shifts to the US economic calendar, marked by the release of the Core PCE Price Index, the Fed's favored inflation gauge, and the Weekly Initial Jobless Claims during the early North American session.
These data, coupled with US bond yields and overall market risk sentiment, will steer USD demand and provide momentum for the EUR/USD pair. Nevertheless, all eyes are on the imminent release of the widely observed US non-farm payroll (NFP) report on Friday, which will undoubtedly command significant attention.