The EUR/USD pair reverses an Asian session dip to the 1.0880 aera and for now, seems to have stalled its retracement slide from the vicinity of mid-1.1100s, or the highest level since September touched last week. Spot prices currently trade around the 1.0960 region, nearly unchanged for the day amid mixed cues.

The US Dollar (USD) struggles to capitalize on Friday's recovery from a six-month low and kicks off the new week on a weaker note amid bets that the US economy could enter a recession and force the Federal Reserve (Fed) to resume its rate-cutting cycle. In fact, the markets are now pricing in the possibility that the Fed will deliver four quarter-basis-points rate cuts in 2025. This, along with the global flight to safety, leads to a further steep decline in the US Treasury bond yields depressed, which, in turn, undermines the USD and lends some support to the EUR/USD pair.

Traders, however, might refrain from placing aggressive bullish bets around the shared currency amid the risk of a further escalation of a trade war between the US and the European Union (EU). The 27-nation bloc faces 25% import tariffs on steel and aluminum and cars, and reciprocal tariffs of 20% for almost all other goods. Furthermore, the European Commission will propose late on Monday a list of US products to be hit with extra duties in response to Trump's levies. This, along with the global carnage, could support the safe-haven buck and cap the EUR/USD pair.

Moving ahead, traders now look forward to the release of German Industrial Production and Trade Balance data, followed by the Eurozone Sentix Investor Confidence. The focus, however, will remain glued to trade-related developments, which will play a key role in influencing the broader risk sentiment and driving the USD demand. This, in turn, might provide some impetus to the EUR/USD pair and assist traders to grab short-term opportunities.

Source: Fxstreet