The EUR/USD pair extended its overnight modest retracement slide from the 1.0530-1.0535 region, or its highest level since December 17, and triggered a major follow-through sell-off during the Asian session on Tuesday (1/28). The spot price is currently trading around the 1.0430 region, down over 0.50% for the day and seems vulnerable to weakening further amid a strong pickup in the US Dollar (USD) demand.

Investors remain concerned that US President Donald Trump's trade tariffs will reignite inflation concerns, which triggered a modest recovery in the US Treasury bond yields. This, in turn, helped the USD Index (DXY), which tracks the greenback against a basket of currencies, to stage a solid bounce from over one-month lows touched on Monday and exerted some downward pressure on the EUR/USD pair.

Meanwhile, Trump had earlier this month threatened to impose tariffs on Mexico, Canada, China, and the European Union (EU). This, along with rising bets for a major interest rate cut by the European Central Bank (ECB) on Thursday, undermined the shared currency and contributed to the EUR/USD pair's decline. However, market participants might refrain from placing any aggressive bets ahead of the key central bank event risk.

The US Federal Reserve (Fed) is scheduled to announce its policy decision at the end of its two-day meeting on Wednesday, which will be followed by the ECB meeting on Thursday. The latest monetary policy update will provide a fresh directional impetus to the EUR/USD pair. Meanwhile, traders on Tuesday will take cues from the US macro data to grab short-term opportunities later during the US session.

The US economic docket features the release of Durable Goods Orders, the Conference Board Consumer Confidence Index, and the Richmond Manufacturing Index. That said, the aforementioned fundamental backdrop makes it prudent to wait for a strong follow-through selling before confirming that the EUR/USD pair's recent recovery from over two-year troughs has ended. (AL)

Source: FXstreet