Dollar Bulls Dominate The Market, Euro Retests Familiar Support

Image Source: Unsplash

European stock markets hold onto gains on Wednesday, with major indexes adding around 1.5% on the day as sentiment turned cautiously upbeat after a strong sell-off witnessed at the start of the week.  Still, the safe-haven dollar retains recent gains, holding just slightly off two-decade lows registered around 105.65 on Tuesday. The USD index has settled above 105.00 after a brief dip to 104.70 earlier in the day.

Fresh economic data out of the United States showed that retail sales unexpectedly fell by 0.3% month-over-month in May versus a 0.2% expected rise following a gain of 0.7% in the previous month. Core sales came in below than expected as well, while April’s result was revised lower, suggesting the economy may be losing steam in the second quarter.

Still, the greenback saw only brief weakness in the wake of the report, staying resilient ahead of the Fed decision. In fact, weak economic data tends to add to US recession fears, weighing on investor sentiment and thus pushing the safe-haven dollar higher. However, signs of a stronger slowdown in economic growth could eventually deter USD bulls in the longer term.

The dollar’s recent bounce from intraday lows was in part due to a plunge in the euro. The shared currency fell back to the 1.0400 support zone as the ECB emergency meeting failed to boost demand for the euro. As expected, the central bank said it will apply flexibility in PEPP reinvestment and will accelerate its anti-fragmentation program. Should the mentioned support give up anytime soon, EURUSD may retest last month’s lows in the 1.0350 in the near term.