EUR/USD lacks any firm near-term direction, oscillates in a range below 1.0900

The EUR/USD pair struggles to gain any meaningful traction during the Asian session on Tuesday and oscillates in a narrow trading band below the 1.0900 round-figure mark. Traders seem reluctant to place aggressive directional bets and prefer to wait on the sidelines amid the uncertainty over the timing of a potential interest rate cut by the European Central Bank (ECB).

The first ECB policy rate cut is projected to take place in April and the markets have been pricing in a total reduction of 135 basis points (bps) by the end of 2024. That said, ECB President Christine Lagarde signalled last week that borrowing costs will likely start coming down only in the summer and if the incoming economic data supports such a move. Hence, the market focus will remain glued to the ECB monetary policy meeting on Thursday, which will play a key role in influencing the shared currency and provide some meaningful impetus to the EUR/USD pair.

In the meantime, diminishing odds for an early interest rate cut by the Federal Reserve (Fed) continue to act as a tailwind for the US Dollar (USD) and act as a headwind for the EUR/USD pair. In fact, investors have been scaling back their expectations for a more aggressive policy easing in 2024 in the wake of a still-resilient US economy and the recent hawkish remarks by a slew of Fed policymakers. This remains supportive of elevated US Treasury bond yields, which, along with a further escalation of geopolitical tensions in the Middle East, underpin the safe-haven buck.

The USD bulls, however, seem reluctant to place aggressive bets in the wake of the prevalent risk-on environment. This, along with the mixed fundamental backdrop, should help limit the downside for the EUR/USD pair ahead of this week's key central bank event risk and important macro data. The flash PMI prints from the Eurozone and the US are due for release on Wednesday. This will be followed by the Advance US Q4 GDP report on Thursday and the US Core PCE Price Index, or the Fed's preferred inflation gauge on Friday, which should infuse volatility in the markets.

Technical levels to watch