EUR/USD trades in a tight channel above 1.0850 in the European morning on Wednesday as investors move to the sidelines ahead of key macroeconomic events.

Although EUR/USD edged higher during the European trading hours on Tuesday, it failed to gather bullish momentum in the second half of the day as the US Dollar (USD) benefited from the souring market mood.

The ADP will release the private sector employment data in the early American session on Wednesday. Markets expect ADP Employment Change to come in at 150,000 in February, up from 107,000 in January. Later in the session, January JOLTS Job Openings data will also be featured in the US economic docket. In case employment-related data highlight tight labor market conditions, the USD could gather strength with the immediate reaction. Market participants, however, could refrain from taking large positions ahead of Federal Reserve (Fed) Chairman Jerome Powell's testimony before the House Financial Services Committee.

Markets are currently pricing in a 70% probability that the Fed will lower the policy rate in June. In case Powell acknowledges weakness in recent data and confirms a policy pivot in June, the market positioning suggests that there is room for further USD weakness in the near term. 

On the other hand, the USD could gather strength against its rivals if Powell adopts a cautious tone on inflation outlook and reiterates data-dependent approach without hinting at the possible timing of a rate cut.