EUR/USD retreats towards 1.2100 on US dollar rebound

EUR/USD drops back towards the intraday low of 1.2129, down 0.14% on a day, heading into Monday’s European open. In doing so, the currency major pair consolidates gains earned during the previous two-day run-up amid the US dollar’s corrective pullback.

The US dollar index (DXY) rises 0.10% to 90.38 by the press time as market sentiment seeks clear direction after the latest optimism favored bulls. Also challenging the mood could be the downbeat data from China as well as the one-week-old Israel-Palestine tussles.

Although Friday’s downbeat US Retail Sales and Michigan Consumer Sentiment Index, not to forget Industrial Production, saved the Fed policymakers from another laborious day. Markets players reassess the US central bank’s rejection to tapering and/or rate hike odds afterward.

Further, comments from China’s National Bureau of Statistics (NBS) suggesting economic recovery remains uneven, mainly due to the recently sluggish Retail Sales and Industrial Production, also weigh on the sentiment. Elsewhere, the United Nations (UN) rejection to any direct meddling in Gaza, due to the US as per China, joins the coronavirus (COVID-19) woes in Asia and uneven vaccinations, not to forget covid variant woes in the West, to exert additional downside pressure on the previous optimism.

It should, however, be noted that the Fedspeak suggesting the need for “multiple data of more months” for any policy adjustments seem justified, which in turn keeps bears cautious.

Amid these plays, S&P 500 Futures print mild losses whereas the US 10-year Treasury yields drop 1.5 basis points (bps) to 1.62% by the press time.

Looking forward, New York Empire State Manufacturing PMI and US NAHB Housing Market Index for May, expected 24 and 83 versus 26.3 and 83 priors in that order, will decorate the calendar. However, major attention will be given to the Fedspeak. Fed’s Vice Chairman Richard Clarida is likely to reiterate his cautious optimism while defending the no policy adjustments, in absence of which the EUR/USD may witness further downside towards short-term key support.

Technical analysis

A pullback from the 1.2180 hurdle favors EUR/USD sellers targeting an ascending support line from March-end, around 1.2080.