• EUR/USD struggles to capitalize on the overnight strong gains amid a modest USD recovery.
• The divergent Fed-ECB policy expectations back the case for the emergence of dip-buying.
• Traders now look forward to the US macroeconomic data to grab short-term opportunities.

The EUR/USD pair edges lower during the Asian session on Thursday and erodes a part of the previous day's strong gains to its highest level since October 17. Spot prices currently trade around the 1.1660-1.1655 region, though the downside seems limited amid a supportive fundamental backdrop.

The US Dollar (USD) is attempting a modest recovery from its lowest level since late October and is turning out to be a key factor acting as a headwind for the EUR/USD pair. The upside for the USD, however, seems limited on the back of dovish Federal Reserve (Fed) expectations. The recent US macro data pointed to a gradual cooling of the economy, which, along with signs that the slowdown in the US labor market intensified in November, lifted bets for a 25-basis-point (bps) rate cut at the upcoming FOMC meeting next week.

Meanwhile, the prospects for lower US interest rate cuts remain supportive of a positive risk tone and might also contribute to capping the upside for the safe-haven Greenback. The shared currency, on the other hand, might continue to draw support from the growing acceptance that the European Central Bank (ECB) is done cutting interest rates. In fact, ECB President Christine Lagarde said that the central bank expects inflation to stay near its 2% goal in the coming months, reinforcing the argument for the policy hold.

Even from a technical perspective, the overnight breakout through the 100-day Simple Moving Average (SMA) was seen as a key trigger for the EUR/USD pair. This, in turn, suggests that the path of least resistance for spot prices remains to the upside and any meaningful corrective decline might still be seen as a buying opportunity. Traders now look to the US economic docket – featuring Challenger Job Cuts and the usual Weekly Initial Jobless Claims – for some impetus ahead of the crucial US inflation data on Friday.