EUR/USD eyes a confident break above 1.0860 for a solid recovery ahead of US Retail Sales

The EUR/USD pair attempted a rebound move from 1.0850 but has struggled in extending recovery above 1.0863 in the Asian session. The major currency pair is making efforts for extending recovery as the US Dollar Index (DXY) has shown signs of exhaustion in the upside momentum.

Improving market sentiment has fueled some strength in risk-perceived assets. S&P500 futures have recovered the majority of losses reported in early Asia as investors are ignoring risks associated with United  States debt-ceiling issues and are capitalizing on rising expectations that the Federal Reserve (Fed) will pause its policy-tightening spell.

The US Dollar Index (DXY) has shown some volatility in the Asian session after refreshing its five-week high at 102.75 as US President Joe Biden is set to meet Republican leaders for further negotiations on raising the borrowing cap of the US Treasury on Tuesday. However, no practical outcome of Tuesday’s meeting would deeper fears of payment default significantly.

Meanwhile, volatility increment in the USD Index has also impacted US yields. The 10-year US Treasury yields have dropped below 3.46%.

Going forward, the USD Index would show some action amid the release of the US Retail Sales data. Monthly Retail Sales data is seen expanding by 0.7% vs. a contraction of 0.6%. A recovery in the retail demand by households might weak expectations for a rate-hike pause by the Fed.

On the Eurozone front, investors are awaiting the release of the preliminary Gross Domestic Product (GDP) data (Q1), which is scheduled for Tuesday. The pace in GDP growth is seen unchanged on a quarterly and an annual basis at 0.1% and 1.3% respectively. It seems that Eurozone would manage to escape recession ahead.

About interest rate guidance, European Central Bank (ECB) policymaker Peter Kazimir said, “ECB may need to raise interest rates longer than previously thought to help tame inflationary pressures.”