- EUR / USD witnessed strong selling on Wednesday and retreated further from the three-week high.
- The USD got an additional boost from upbeat US macro data and compounded the downward pressure.
- Sustained weakness below 1.2050 could have already set the stage for a further decline.
USD buying interest accelerated during the early North American session and dragged the pair down EUR/USD below 1.2050, finding ground at 1.2038, a new low since February 8.
The pair extended the previous day’s retracement slide from the 1.2170 region, or close to the three-week highs and witnessed strong selling for the second consecutive session on Wednesday. The decline was solely sponsored by a widespread strength in the US dollar, supported by the recent runaway rally in US Treasury yields.
The US bond market has been reacting to expectations of the passage of the $ 1.9 trillion stimulus package proposed by President Joe Biden. This, in turn, fueled hopes for a speedy US economic recovery and a possible acceleration in inflation, pushing the benchmark 10-year bond yield to the highest level since February 2020.
Meanwhile, risk aversion continued to support USD demand and was seen as a key factor weighing on the EUR / USD pair. The already stronger dollar received an additional boost after the release of stronger-than-anticipated US economic releases: monthly retail sales figures and producer price index (PPI) for January.
In fact, overall sales beat even the most optimistic estimates and posted strong growth of 5.3% during the reported month. Added to this, sales excluding automobiles and the Retail Control Group, followed closely, increased by 5.9% and 6.0%, respectively, exceeding market expectations by a large margin.
On the other hand, the US Bureau of Labor Statistics reported that the US PPI soared to 1.3% in January from 0.3% in the previous month. On an annual basis, the PPI rose to 1.7% from the previous 0.8% and was much higher than the consensus estimates that point to a reading of 0.9%. The data supported the vision of a strong American economic recovery from the pandemic.
With the latest downward movement, the EUR / USD has now found acceptance below the mid-1.2000 and appears vulnerable to further decline. Therefore, some subsequent weakness towards the challenge of the key psychological level of 1.2000, en route to monthly lows near 1.1950, now seems a clear possibility.
Technical Levels
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