The overall bullish trend is likely to stay intact, with upside risks still persisting at this stage
Investor sentiment improved ahead of the weekend and stays upbeat on Monday, pressuring the safe-haven dollar as equity markets enjoy a so-called relief rally due to positive economic data out of the United States that have eased recession worries somehow. US retail sales exceeded expectations while inflation expectations weakened marginally, making investors expect the Federal Reserve to hike rates by 75 basis points rather than by 100 basis points.
Following solid gains in Asia, European stocks opened in positive territory, with US stock index futures keeping higher in early pre-market deals. Against this backdrop, the US dollar stays on the back foot. The USD index has been retreating for the third day in a row on Monday after peaking at fresh twenty-year highs around 109.30. Today, the greenback slipped below the 108.00 figure, shedding nearly 0.6% on the day in early European deals. Should the pressure intensify any time soon, the dollar index may target the 107.00 mark that represents the next near-term support.
However, the overall bullish trend is likely to stay intact, with upside risks still persisting at this stage. Furthermore, stocks could come under renewed selling pressure once the current optimism abates. In the coming days, the greenback could be pressured by the ECB policy meeting if the central bank dares to deliver a hawkish hike. However, the regulator could express a more cautious tone considering the looming recession and the persisting energy crisis in Europe. In this scenario, the euro would come under renewed pressure, thus playing into dollar’s hands.
The shared currency is back above the 1.0100 handle, challenging the 1.0150 zone that represents the intermediate barrier on the way towards 1.0200. Should the EURUSD pair extend the ascent in the near term, the prices will likely be rejected by the descending 20-DMA, today around 1.0300. However, the selling pressure may reemerge even earlier, especially as the ECB is not expected to deliver a hawkish tone while a rate hike has been priced in already.