EUR/USD struggles to attract buyers, remains below mid-1.1000s amid modest USD gain

• EUR/USD moves higher after an intraday dip to a one-week low, albeit without success.
• Short bets on a 50 bps Fed rate cut continue to support the USD and act as a headwind.
• Dovish ECB expectations continue to cap gains ahead of key US data/central bank event risks.

EUR/USD is recovering a few pips from a one-week low around the 1.1030-1.1025 area hit during the Asian session on Tuesday and for now appears to have snapped a two-day losing streak. Any significant appreciation movement, however, still appears elusive following further buying in the US dollar (USD).

Investors trimmed their bets on a further 50 basis point (bps) interest rate cut by the Federal Reserve (Fed) in September after the release of the mixed US jobs report on Friday. This helps the Greenback attract some buyers for the third day in a row and return closer to the monthly peak reached last week, which in turn is seen as a headwind for the EUR/USD pair.

The common currency’s relatively weak performance could further be attributed to growing market expectations that the European Central Bank (ECB) will cut interest rates again in September, following a fall in eurozone inflation. This could further cap the EUR/USD pair, although the downside is likely to remain cushioned ahead of this week’s key central bank data/event risks.

The latest US consumer inflation numbers are due out on Wednesday, followed by the US Producer Price Index (PPI) on Thursday. This will play a key role in influencing market expectations about the size of the Fed’s interest rate cut move later this month, which in turn will boost USD demand. Apart from this, the crucial ECB policy decision on Thursday will provide a new directional boost to the EUR/USD pair.

In the absence of any relevant economic releases on Tuesday, either from the Eurozone or the US, the aforementioned fundamental context calls for caution for bulls. Therefore, it will be prudent to wait for a strong further buy before confirming that the recent corrective pullback from the 1.1200 level, or above a one-year high reached in August, has run its course.