EUR/USD remains on the defensive below mid-1.0700s, looks to German ZEW survey

• EUR/USD trades with a mild negative bias during the Asian session on Tuesday.
• The USD stalls its retracement slide from a multi-month top and caps the upside.
• Traders now look to the German Zew Economic Sentiment for a fresh impetus.
• The focus remains on the US CPI on Wednesday and Thursday's ECB meeting.

The EUR/USD pair struggles to capitalize on the overnight strong move up to a four-day high and trades with a mild negative bias during the Asian session on Tuesday. Spot prices currently hover below mid-1.0700s and remain well within the striking distance of a three-month low touched last week.

The US Dollar (USD) stabilizes after a sharp fall on Monday and for now, seems to have stalled its retracement slide from the highest level since March, which, in turn, is seen as a key factor acting as a headwind for the EUR/USD pair. The prospects for further policy tightening by the Federal Reserve (Fed) remain supportive of elevated US Treasury bond yields, which, along with the cautious market mood, lend some support to the safe-haven Greenback.

It is worth mentioning that the markets are still pricing in the possibility of one more 25 bps Fed rate hike move by the end of this year. Furthermore, the upbeat US macro data released last week pointed to a resilient economy and should allow the Fed to keep interest rates higher for longer. This, in turn, fuels concerns about economic headwinds stemming from rapidly rising borrowing costs and continues to keep a lid on the optimism in the equity markets.

The shared currency, on the other hand, is undermined by the uncertainty over the European Central Bank's (ECB) future rate-hike path. In fact, market participants remain divided on whether the ECB will hike interest rates for a 10th straight time amid still-hight inflation or pause its historic policy-tightening cycle in the wake of a darkening Euro Zone economic outlook. This further contributes to capping the upside for the EUR/USD pair, at least for now.

Traders now look to the release of the German ZEW Economic Sentiment for some impetus during the European session. The focus, however, will remain glued to the crucial US consumer inflation figures on Wednesday and the ECB meeting on Thursday, which will play a key role in influencing the EUR/USD pair's near-term trajectory. In the meantime, the aforementioned fundamental backdrop warrants caution before placing aggressive directional bets.

Technical levels to watch