Photo by Timon Studler on Unsplash

Following solid gains in Asia, European stock markets advanced on Tuesday as risk aversion has abated after the recent sell-off. US stock index futures pointing to higher open, pressuring the safe-haven dollar across the market.

Interestingly, the US retail sales report failed to deter investors while the USD index continued to trend lower even as core sales growth was stronger than expected. Headline retail sales growth was in line with expected at 0.9% last month versus 1.4% in March. Core sales were revised to 2.1% on a monthly basis versus the prior estimate of 1.4%. 

In a knee-jerk reaction to the release, the greenback slipped to local lows around 103.20 before bouncing slightly. It looks like USD bulls had expected a more spectacular headline number that would trigger even more hawkish tone from the Fed. By the way, Fed’s Bullard (hawkish FOMC member) said that 50 bps rate hikes at upcoming Fed meetings are a good base case for now.  

As the dollar remains on the defensive, affected by risk-on trends, EURUSD regained the 1.0500 figure to get back to the 1.0555 zone on Tuesday. As such, the common currency is now just below the descending 20-DMA that has been capping gains since early-April. The question is if the euro manages to overcome this barrier as the pair remains within a broader bearish trend, holding marginally above early 2017 lows seen last week around 1.0350. 

In turn, the US currency may receive a fresh bullish boost to stage a robust bounce as dip buyers would reemerge as soon as risk appetite wanes in the global financial markets. Moreover, it seems that the USD hasn’t peaked yet and could advance beyond the 105.00 figure in the coming weeks.