EUR/USD declined to fresh lows for the year on Tuesday as rising U.S. bond yields and retail sales data pushed the greenback higher against all of its major counterparts. The pair fell sharply following retail sales data, triggering stops below last week's low prior to stabilizing.
Last week's price action hinted at a dollar correction, as reversal candlestick patterns were found in several of the majors as well as the U.S. dollar index (DXY). Today's dollar rally has wiped out some of last week's bearish short-term positioning and puts the spotlight back on the bullish dollar trend that has been under way over the past several weeks.
EUR/USD hinted at a continuation lower after posting a bearish shooting star candle on Monday. The pair also broke lower from a technical pattern in late-day trading yesterday as the recovery from last week's low took the form of a bearish flag pattern. The recent recovery took the pair above a steep declining trendline that originated from a high posted on April 19.
Although this technical break does not signal a reversal, especially considering today's price action, it points to a slowing of downside momentum. EUR/USD is seen bouncing higher after piercing through last week's low to liquidate weak hands that likely positioned last week. Near-term resistance is found at 1.1875. Stronger resistance is found at 1.1941, which reflects a horizontal level that has been relevant as both support and resistance on a daily chart.
[Looking for a reliable broker to trade currencies? Check out Investopedia's forex broker reviews.]
U.S. bond yields rallied on Tuesday, with a break in the 10-year Treasury yield above psychological resistance at 3%. The 10-year yield met resistance at 3% in late April and had been consolidating slightly below the level since. Today's bullish break is likely to drive demand for U.S. bonds, underpinning the dollar. Rising bond yields weighed on precious metals, with the price of gold falling below $1,300 for the first time this year. Silver prices retreated back toward the $16.20 area, which has provided support on many attempts since early February.
Also providing a catalyst for dollar gains today was the release of U.S. retails sales data. Sales were reported to rise a modest 0.3% on a month-over-month basis in April. Although this was considerably lower compared with the upwardly revised 0.8% increase in sales for March, the figures were in line with expectations. Earlier in the day, German preliminary GDP was reported to rise 0.3%, falling slightly short of the analyst consensus for a rise of 0.4%. Eurozone GDP rose 0.4%, as expected. The next data release pertaining to EUR/USD will be final CPI numbers, released by Eurostat on Wednesday.
From a broader perspective, today's decline in EUR/USD suggests a continuation in the downtrend that has been taking place since around the middle of April. A sustained breach below last week's low could bring an increase in downside momentum. The next area of interest falls at 1.1714. The price point reflects a notable spike high from 2015 and had also provided support during a failed head and shoulders pattern that took place in the second half of last year.
Positioning continues to be an important factor in the dollar pairs. The latest Commitment of Traders report revealed that the euro net long continues to be the largest reported long held among the majors. It has come down from elevated levels in late April. However, the decline in net positioning is entirely attributed to a build in euro short positions. In fact, euro gross long contracts were shown to have increased over the past two reports. Some decline in the large bearish dollar bet can be seen via positioning adjustments in a few of the other currencies; nevertheless, the risk remains tilted to the downside in EUR/USD when it comes to positioning.
The dollar is on pace to post gains against all of its major counterparts on Tuesday. In the first half of May, the greenback has also outperformed among the major currencies. The New Zealand dollar has posted the largest losses in the month thus far, followed by the euro. While the Kiwi dollar has been weak, the rest of the commodity currencies have performed relatively well, as the Australian and Canadian dollar show the smallest losses mid-month, trading about half a percent lower versus the greenback.