EUR/USD struggles to hold above 1.18 handle

The EUR/USD pair, which dropped to a session low of 1.1787 in the NA session, gained traction and retraced its daily gains to 1.1830 region before losing momentum once again. As of writing, the pair was trading at 1.1803, losing 0.32% on the day. 

The pair's price action on Tuesday seems to be dominated by the DXY movements. After easing to 92.64, the US Dollar Index edged higher towards the 93 handle but struggled to extend this move into the second half of the session as today's macro data failed to trigger a strong recovery. At the moment, the index is at 92.88, up 0.23% on the day. Today's data from the U.S. showed that the core PCE price index came in above the market consensus while personal income growth disappointed, hence receiving mixed reactions from the market. 

• US Dollar consolidates gains, remains positive on day, still below 93

On Wednesday, Producer Price Index will be released from the euro area, which is expected to contract by 0.1% on a monthly basis in June after coming in at -0.4% in May. Although the participants usually ignore this data, a weak reading could hurt the demand for the technically overbought euro, as it could be seen as a drag on the medium-term consumer inflation, which could dampen the expectations of a hawkish ECB move.

Later in the day, the ADP private sector employment will be released before the American traders hit their desks. The market expects the private sector employment to grow by 185K in July after increasing 158K in June. However, today's ISM Manufacturing PMI report showed that the manufacturing sector didn't hire as many people as they did in June as the employment sub-index dropped by 2 points, increasing the probability of a weak reading tomorrow.

• US: ISM Manufacturing signals for continued strength - Wells Fargo

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet, writes, "from a technical point of view, the 4 hours chart shows that the pair remained contained below the roof of the ascendant channel, but above bullish moving averages, with the 20 SMA currently around 1.1760. The Momentum indicator pulled sharply lower from overbought territory, while the RSI indicator also heads modestly lower, but holding around 65, yet given the shallow price retracement, chances remain towards the upside, with a bullish breakout of the daily high favoring an extension towards 1.1900 and beyond for this Wednesday."

According to the analyst, resistances for the pair could be seen at 1.1845, 1.1870 and 1.1910 while supports align at 1.1780, 1.1750 and 1.1715.

• EUR/USD room for a test of 1.1876 – Commerzbank
• EUR/USD further gains not ruled out – UOB