EUR/USD trades with a mild positive bias just above 1.0900, lacks follow-through

• EUR/USD attracts some buyers on Monday, albeit the intraday uptick lacks bullish conviction.
• A modest downtick in the US bond yields weighs on the USD and lends support to the major.
• Economic woes, the Fed’s hawkish outlook limits the USD losses and keeps a lid on the pair.

The EUR/USD pair kicks off the new week on a positive note and moves further away from over a one-week high - levels just below mid-1.0800s touched on Friday. Spot prices trade with a mild positive bias around the 1.0900 mark through the Asian session, albeit lacks any follow-through buying or a bullish conviction.

The US Dollar (USD) struggles to capitalize on its recovery gains registered over the past two days, from the lowest level since May 11, and meet with some supply on Monday, which, in turn, is seen lending some support to the EUR/USD pair. The S&P Global reported on Friday that business activity in the US fell to a three-month low in June as services growth eased for the first time this year and the contraction in the manufacturing sector deepened. This, along with a modest downtick in the US Treasury bond yields and a positive tone around the US equity futures, undermine the safe-haven Greenback.

That said, the Federal Reserve's (Fed) hawkish outlook could act as a tailwind for the buck and cap the EUR/USD pair. In fact, the Fed earlier this month decided to pause its year-long rate-hiking cycle, though signalled that borrowing costs may still need to rise as much as 50 bps by the end of this year. Adding to this, Fed Chair Jerome Powell reiterated that the central bank will raise interest rates again this year, albeit at a "careful pace", to contain high inflation. Powell added that the Fed doesn't see rate cuts happening any time soon and is going to wait until it is confident that inflation is moving down to the 2% target.

Traders also seem reluctant to place aggressive bullish bets around the shared currency in the wake of Friday's disappointing release of Eurozone PMI prints, which deepens a policy dilemma for the European Central Bank (ECB). It is worth recalling that  S&P Global's preliminary report pointed to a sharp slowdown in business activity in France and Germany - the Eurozone's two largest economies. Furthermore, HCOB's flash Composite Eurozone PMI sank to a five-month low, which adds to worries about economic headwinds stemming from rising borrowing costs and contributes to keeping a lid on the EUR/USD pair.

In the absence of any relevant market-moving economic data, either from the Eurozone or the US, traders on Monday will look to ECB President Christine Lagarde's speech for some impetus. Apart from this, the USD price dynamics should produce short-term opportunities around the EUR/USD pair. The focus, however, remains on the release of the US Core PCE Price Index - the Fed's preferred inflation gauge on Friday, which will play a key role in driving the USD and help determine the next leg of a directional move for spot prices.

Technical levels to watch