EUR/USD pulls back from highs ahead of Eurozone inflation data

• The Euro pulls back from Monday's highs, but the immediate trend remains positive.
• Investors are bracing for a steady Eurozone inflation report due later on Tuesday.
• The US Dollar remains vulnerable amid Trump's attacks on the Fed and hopes of rate cuts.

The EUR/USD pair is putting an end to a five-day positive streak on Tuesday and retreats from Monday's highs at 1.1735, trading right below 1.1700 at the time of writing in the European session opening. Investors are hesitating ahead of the release of the preliminary Eurozone Consumer Prices Index (CPI) figures, yet with downside attempts limited so far. The US Dollar (USD) struggles amid rising concerns about the independence of the US Federal Reserve (Fed).

Eurozone inflation is forecast to have remained steady near the European Central Bank (ECB) 2% target rate, which provides further reasons for the bank to keep interest rates steady at its September meeting. The stronger-than-expected manufacturing activity data seen on Monday and comments from ECB board member Isabel Schnabel endorse that view.

On the other hand, the war between US President Donald Trump's Government and the Fed is eroding the credibility of the last one and scaring investors away from the US Dollar (USD) at a critical moment, when the bank is about to resume its rate-cutting cycle.

Recent comments by US Treasury Secretary Scott Bessent saying that the "Fed has made a lot of mistakes" have failed to ease markets, already concerned by Trump's attempts to replace committee members with loyalist doves, which have led to a likely lengthy legal battle with Fed Governor Lisa Cook.

In the US economic calendar, manufacturing and services activity data, and the all-important Nonfarm Payrolls report, due on Friday, will be a key test for Trump's trade policies and provide further clues about September's Fed monetary policy decision.

Daily digest market movers: The US Dollar might remain vulnerable ahead of key data

• The Euro (EUR) is pulling back on Tuesday, but holds most of the ground taken over the last few days. Trump's attacks on the Fed and market expectations that the US central bank will cut interest rates later in September are keeping US bulls in check, while in Europe, solid macroeconomic figures and hawkish ECB rhetoric are likely to underpin the Euro.
• ECB board member Isabel Schnabel affirmed on Tuesday that interest rates are "mildly accommodative" at the moment and sees no reason for further monetary easing in the near term.
• On Monday, ECB President Christine Lagarde provided further support to the Euro, dismissing concerns about the French banking system and affirming that economic uncertainty has been "considerably reduced" in a speech suggesting that monetary policy will remain unchanged after September's meeting.
• Recent Eurozone data support that view, as the Eurozone HCOB Manufacturing Purchasing Managers' Index (PMI) was revised up to 50.7, from the 50.5 previous estimate, confirming that the sector's activity expanded in August for the first time in the last three years.
• Tuesday's highlight is August's preliminary Eurozone CPI release. Consumer Inflation is expected to have grown at a 2% year-on-year rate, while the core CPI is seen moderating to a 2.2% yearly reading from 2.3% in July.
• In the US, the main attraction will be the ISM Manufacturing PMI due at 14:00 GMT, still, which is forecasted to have improved to 49 in August, from 48 in July, still at levels pointing to a contraction of the sector's activity.

Technical Analysis: EUR/USD remains in range, with 1.1740 resistance holding bulls

The EUR/USD near-term bias has improved, but the pair remains looking for direction within the broadly 150-pip range that has contained price action for most of August. The 4-hour Relative Strength Index (RSI) is at positive levels, at 56, but daily technical indicators suggest a frail upside momentum.

To the upside, the confluence between the descending trendline resistance, now around 1.1730 and 1.1740, which encompasses the peaks of August 13 and 22, as well as Monday's high, is likely to pose a serious challenge for bulls. A confirmation beyond here would clear the way towards the late-July lows around 1.1790, ahead of the July 1 high at 1.1830.

Bearish attempts, on the other hand, are likely to meet support at the August 29 low, around 1.1650, ahead of the bottom of the monthly range, between 1.1575 and 1.1590, which capped bears on August 11, 22, and 27. Further down, the 50% Fibonacci retracement level of the early August bullish run, at 1.1560, might provide some support ahead of the August 5 low, near 1.1530.