EUR/USD trades with a mild positive bias on subdued USD demand, remains below 1.0600 mark

The EUR/USD pair gains some positive traction during the Asian session on Tuesday and remains well within the striking distance of last week's swing high. Spot prices currently trade around the 1.0575-1.05780 region, up just over 0.15% for the day, and draw support from a softer tone surrounding the US Dollar (USD).

The USD Index (DXY), which tracks the Greenback against a basket of currencies, touches a one-and-half-week low in the wake of the ongoing retracement slide in the US Treasury bond yields. Despite Friday's upbeat headline NFP print, relatively subdued wage growth eased inflationary concerns and might force the Federal Reserve (Fed) to soften its hawkish stance. Adding to this, the overnight comments by Fed officials caused investors to undercut the likelihood of further rate hikes and led to a further decline in the US bond yields. This, in turn, is seen undermining the USD and acting as a tailwind for the EUR/USD pair.

Meanwhile, the initial reaction to military clashes between Israel and the Palestinian Islamist group Hamas turned out to be short-lived, which is evident from a positive turnaround in the equity markets. This turns out to be another factor denting the Greenback's relative safe-haven status and lends additional support to the EUR/USD pair. The uptick, however, lacks bullish conviction on the back of speculations that additional rate hikes by the European Central Bank (ECB) may be off the table for now. This, in turn, warrants some caution for aggressive bullish traders and positioning for any further appreciating move.

Even from a technical perspective, the recent downfall witnessed over the past three months or so, from a 17-month top touched in July, has been along a downward-sloping channel. This points to a well-established short-term bearish trend and makes it prudent to wait for a strong follow-through buying before confirming that the EUR/USD pair has formed a near-term bottom around the 1.0450-1.0445 area, or the YTD trough set last week. Traders might also prefer to wait on the sidelines ahead of the release of the FOMC meeting minutes and the latest US consumer inflation figures on Wednesday and Thursday, respectively.

In the meantime, market participants will take cues from scheduled speeches by ECB President Christine Lagarde and influential FOMC members. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and contribute to producing short-term trading opportunities around the EUR/USD pair in the absence of any relevant economic data.

Technical levels to watch