• EUR/USD regains positive traction on the appearance of fresh USD selling on Tuesday.
• Expectations of a 50 basis point Fed rate hike in December act as a headwind for the dollar.
• Encouraging German factory orders data underpins the Euro and offers additional support.

The pair EUR/USD it attracts new buying on Tuesday and appears to have halted the previous day’s pullback from near 1.0600, or its highest level since late June, for now. The pair continues to rise in the American session and has reached a fresh daily high around the 1.0525-1.0530 zone in the last hour.

The dollar’s recovery from the five-month lows hit on Monday peters out ahead of the important 200-day SMA which, in turn, offers some support for the EUR/USD pair. Increased bets on a relatively minor rate hike of 50 basis points in December further dwarf speculation that the Fed could raise interest rates more than anticipated. This keeps US Treasury yields depressed, which, along with signs of stability in equity markets, undermines the safe haven of the dollar.

Elsewhere, the shared currency gets additional support from better-than-expected German data showing factory orders rose 0.8% in October, versus an estimated 0.2% decline. That being said, concerns about a deeper economic downturn and diminishing odds of more aggressive policy tightening from the European Central Bank (ECB) could act as a headwind for the EUR/USD pair. In the absence of important economic data for the market, some caution is required before making aggressive bullish bets.

On the other hand, the appearance of some dip buying on Tuesday lends more credence to the recent break through a technically significant 200-day SMA. This, in turn, supports the prospects for a resumption of the recent positive trend, which should allow the EUR/USD pair to make another attempt to conquer 1.0600. Investors, however, would prefer to stay out ahead of next week’s key data/events: US consumer inflation numbers, FOMC decision and ECB policy meeting.

Technical levels to watch