EUR/USD stays defensive above 1.1200 after retreating from 17-month high on US Dollar recovery

• EUR/USD remains pressured following a U-turn from the highest level since February 2022.
• Upbeat US Core Retail Sales growth joins mixed ECB signals and risk-on mood to prod Euro bulls at multi-month high.
• Mid-tier data, risk catalysts eyed as the US Dollar licks its wounds at 15-month low.

EUR/USD stays depressed near 1.1230 during the early hours of Wednesday’s Asian session, after retreating from the highest level in 17 months the previous day. That said, the US Dollar’s corrective bounce from the multi-month low joins the mixed signals from the European Central Bank (ECB) to prod the Euro pair buyers of late.

US Dollar Index (DXY) dropped to a fresh 15-month low on early Tuesday before bouncing off the 99.56 level, around 99.95 by the press time. In doing so, the greenback’s gauge versus six major currencies cheers mostly upbeat prints of the US Retail Sales, even if the headline figures eased. It should be observed, however, that the DXY has been sluggish of late, which in turn allows the EUR/USD pair to take a breather after reversing from a multi-month high.

On Tuesday, US Retail Sales growth for June came in as 0.2% MoM versus 0.5% expected and prior (revised). However, the Retail Sales Control Group marked 0.6% growth versus market forecasts of -0.3% and 0.3% previous readings. It should be noted that the US Industrial Production reprinted -0.5% for June compared to analysts’ estimations of 0.0%.

On the other hand, European Central Bank (ECB) Governing Council member Klaas Knot said on Tuesday, rate hikes beyond July are likely but not certain. Earlier in the week, European Union (EU) Commissioner for the Economy Paolo Gentiloni said that Eurozone inflation will be near the 2% target in 2024, rather than the ECB’s forecast for the said level for 2025.

Elsewhere, the market’s risk-on mood also puts a floor under the EUR/USD price. That said, Market sentiment improves on the positive performance of the US banks, as well as the risk-positive headlines surrounding China, which in turn allowed the Wall Street benchmarks to refresh the yearly top. It’s worth noting, however, that the benchmark US 10-year Treasury bond yields remain pressured around 3.78% while the two-year counterpart edges higher near 4.76% at the latest.

That said, the share prices of the top-tier US banks like Bank of America, Morgan Stanley and Bank of New York Mellon Corp rallied on Tuesday on news that higher interest rates had helped boost profits in the second quarter, shared via Reuters. “Signs of a revival in investment banking, which has been in the doldrums as higher rates and economic uncertainty put a damper on deals and trading, also drove share gains,” said the news.

Against this backdrop, Wall Street benchmarks rallied but the US Treasury bond yields edged lower while the US Dollar Index (DXY) initially dropped to a fresh 15-month low before bouncing off 99.56 level, around 99.95 by the press time.

Moving on, risk catalysts will be crucial to watch for clear directions amid a light calendar and mixed sentiment.

Technical analysis

Although the overbought RSI and 1.1280 hurdle challenged the EUR/USD buyers, the Euro pair’s downside appears elusive unless providing a daily close below the previous resistance line stretched from February 2023, at 1.1140 by the press time.