EUR/USD pares daily gains, retreats to 1.2030 area amid modest USD recovery

• EUR/USD lost its traction after climbing to fresh multi-week highs.
• US Dollar Index posts modest daily gains near 91.20.
• Wall Street's main indexes suffer heavy losses on Tuesday.

The EUR/USD pair climbed to its highest level since early March at 1.2080 on Tuesday but reversed its direction during the American trading hours. As of writing, the pair was virtually unchanged on a daily basis at 1.2030.

DXY capitalizes on safe-haven flows

Earlier in the day, EUR/USD preserved its bullish momentum as the greenback struggled to find demand. With the market mood souring in the second half of the day, the USD started to attract investors as a safe haven and the US Dollar Index (DXY) turned positive on the day.

Reflecting the risk-off market environment, the S&P 500 and the Dow Jones Industrial Average both lose 0.8%. Meanwhile, the DXY is up 0.15% at 91.22.

There won't be any significant macroeconomic data releases from the euro area on Wednesday and the USD's market valuation is likely to continue to drive EUR/USD's movements ahead of the European Central Bank's (ECB) policy announcements on Thursday.

Previewing the ECB's April policy meeting, “the ECB’s latest announcement – that purchases under the Pandemic Emergency Purchase Programme (PEPP) over the next quarter will be conducted at a significantly higher pace than during the first months of this year – reinforces our view that it will remain highly accommodative for longer," said UOB Group economist Lee Sue Ann.

Technical levels to watch for