EUR/USD remains on the defensive, trades just above 1.0600 mark ahead of Eurozone CPI

The EUR/USD pair struggles to capitalize on the previous day's positive move and trades with a mild negative bias during the Asian session on Tuesday. Spot prices, however, manage to hold above the 1.0600 round figure and remain at the mercy of the US Dollar (USD) price dynamics.

The prospects for further tightening by the Federal Reserve (Fed) remain supportive of elevated US Treasury bond yield and assist the USD in attracting some dip-buying, which, in turn, is seen acting as a headwind for the EUR/USD pair. This, along with expectations that additional rate 
hikes by the European Central Bank (ECB) may be off the table, further contributing to capping spot prices.

The bets were reaffirmed by data showing that German consumer inflation decelerated from the 4.3% YoY rate to 3.0% in October – marking its lowest level since August 2021. This comes on top of looming recession risks and suggests that the ECB's rate-hiking cycle might have already ended. In contrast, the markets are pricing in the possibility of one more rate hike by the Federal Reserve (Fed) in 2023.

Investors seem convinced that the Fed will stick to its hawkish stance in the wake of the US economic resilience and still sticky inflation. Hence, the focus will remain glued to the outcome of the highly-anticipated two-day FOMC monetary policy meeting. The US central bank will announce its decision on Wednesday and is widely anticipated to maintain the status quo for the second straight meeting.

Market participants, meanwhile, will look for cues about the Fed's future rate-hike path, which will influence the USD price dynamics and provide a fresh impetus to the EUR/USD pair. In the meantime, Tuesday's release of the flash Eurozone CPI will be looked upon for short-term opportunities ahead of the US macro data – Chicago PMI and the Conference Board's Consumer Confidence Index.

Technical levels to watch