• EUR/USD retreated to the 1.0600 area after posting gains on Monday.
• Euro area inflation data will be watched closely by market participants.
• Sellers could take action if the pair drops below the 1.0580-1.0580 area.

EUR/USD gathered bullish momentum and registered its highest daily close in a week above 1.0600 on Monday. The negative shift seen in risk sentiment, however, capped the pair's upside early Tuesday.

Although the data from Germany showed on Monday that inflation, as measured by the change in the Consumer Price Index (CPI), softened at a stronger pace than expected in October, EUR/USD continued to stretch higher. The US Dollar (USD) struggled to find demand as a safe-haven amid the bullish action in Wall Street and fueled the pair's daily advance.

After Israeli Prime Minister Benjamin Netanyahu stated that he will not agree to a cease-fire, investors have adopted a cautious stance, helping the USD erase some of Monday's losses.

Later in the session, Eurostat will publish the Harmonized Index of Consumer Prices (HICP) data for October. Markets forecast annual HICP inflation in the Eurozone to decline to 3.2% from 4.3% in September. Following the German inflation report, a soft HICP print from the Euro area could be ignored. 

In the second half of the day, the Conference Board will publish the Consumer Confidence Index data. Ahead of the Federal Reserve's (Fed) monetary policy announcements on Wednesday, market participants are unlikely to take large positions based on this report. Instead, the risk perception could continue to drive EUR/USD action in the near term. At the time of press, US stock index futures were trading flat. A continuation of Monday's risk rally after Wall Street's opening bell could allow EUR/USD to extend its rebound.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays above 50 despite the latest pullback, highlighting a lack of bearish momentum. 

EUR/USD holds above the 1.0570-1.0580 area (Fibonacci 23.6% retracement of the latest downtrend, 100-period Simple Moving Average (SMA) and 200-period SMA). Unless this support fails, buyers could remain interested. In this scenario, 1.0640 (Fibonacci 38.2% retracement) and 1.0700 (psychological level, Fibonacci 50% retracement) could be seen as next resistance levels.

A 4-hour close below 1.0570-1.0580 could attract sellers and open the door for a slide toward 1.0530 (static level), 1.0500 (psychological level) and 1.0450 (end-point of the latest downtrend).