EUR/USD steadies near highs as trade uncertainty, US debt woes weigh on the Dollar

• The Euro hesitates near highs, supported by a weak US Dollar.
• A mix of trade uncertainty, US debt concerns, and bets on Fed rate cuts is hammering the US Dollar.
• EUR/USD has reached overbought levels at 1.1800, a correction looks likely.

The EUR/USD pair is trading practically flat around 1.1790 at the moment of writing on Tuesday, edging slightly down after a nine-day rally that reached levels above 1.1800 for the first time in almost four years.

The Greenback remains on the defensive, hit by a mix of concerns about the chaotic US trade policy, mounting fears about the country's fiscal debt, and rising expectations that the Federal Reserve (Fed) will cut interest rates at least twice before the end of the year.

In the trade domain, optimism about Monday's rare earths deal between the US and China has been offset by US President Donald Trump's complaints about the discussions with Japan and US Treasury Secretary Scott Bessent's threats of higher tariffs.

Moreover, uncertainty about Trump's sweeping tax bill, which is struggling to make its way through the Senate, amid divisions within the republican party about its impact on the US fiscal debt, is adding pressure on the US Dollar.

Another source of pressure for the US Dollar is monetary policy. The president's continuous pressure on the Fed Chairman Jerome Powell to cut interest rates and the softer US data recently released have prompted investors to ramp up rate cut bets for the second half of the year.

Daily digest market movers: The US Dollar extends losses as US fiscal worries return

• With geopolitical tensions in the rearview mirror, concerns about Trump's Tax Bill, which is expected to add $3.3 trillion to the US fiscal debt load, have returned to the market. Fears of a debt crisis are eroding the idea of US exceptionalism and adding weight to the US Dollar.
• Trump has expressed his frustration about the trade talks with Japan, and Treasury Secretary Bessent warned that the US might introduce higher tariffs on July 9 despite ongoing negotiations.
• Regarding monetary policy, the US president has continued hammering the Fed Chair Powell, affirming that the US rate should be between Japan's 0.5% and Denmark's 1.75%. These comments raise questions about the independence of the central bank and undermine the US Dollar's status as the world's reserve currency.
• These attacks, along with the soft macroeconomic figures seen recently, have boosted investors' expectations of Fed rate cuts for the rest of the year. The CME Group's Fed Watch Tool shows a 20% chance of a rate cut in July, but a rate cut of at least 25 basis points (bps)in September is nearly fully priced.
• Tuesday's focus will be on the Central Bankers Summit in Sintra, Portugal, where the chiefs of the world's major central banks will speak about trade, the global economic outlook, and inflation, and might give hints about their rate paths.
• In Europe, the Preliminary Eurozone Consumer Prices Index (CPI) data from June will attract attention. Consumer inflation is expected to have remained steady, following cooler-than-expected CPI readings in Italy and Germany on Monday.
• In the US, the ISM Manufacturing PMI and the JOLTS Job Openings, together with Powell's speech at the Sinttra summit, are expected to provide further clues about the bank's rate cut calendar.

EUR/USD reaches overbought levels at 1.1800

EUR/USD trades slightly down, with the 4-hour Relative Strength Index (RSI 14) showing overbought levels as the pair hits the 1.1800 area. This is often a sign of an upcoming corrective reaction.

On the downside, the previous high at 1.1750 (June 26 and 27 highs), is likely to provide some support to a stronger bearish reaction, ahead of the June 27 low at 1.1680

Resistance is at the mentioned 1.1800 intraday high. Beyond there, the 261.8% Fibonacci extension level of the June 12-23 pullback is at 1.1925.