EUR/USD inter-market: Challenges ahead for the bullish bias

EUR/USD broke temporally above 1.1130 but failed to consolidate and retreated. The euro continues to be unable to rise above 1.1130 and also on top of the next barrier below 1.1200.

Volatility tracked by the VIX index kept trending lower reflecting a risk-on sentiment. The Dow Jones moved off session highs but is still up (+0.70%) while European stock indexes finished with strong gains of more than 1% (excluding the FTSE 100 affected by the Bank of England’s decision).

The US dollar, tracked by the US dollar index fell and it was hovering around 96.00. The index found support after PPI data from the US and moved off lows.  Yields in German and US bonds moved higher in tandem weakened by the risk appetite tone that ruled markets. US 10-year continued to move away from record lows and climbed from 1.450% to 1.530%.

Among key drives today were the BoE, that left interest rates unchanged and boosted the EUR/USD above 1.1130 but then, US data pushed it back toward 1.1100, as Fed rate hike odds for September climbed  modestly. The pair is headed toward the last day of the week with a bullish bias but with the upside limited.

On Friday, relevant economic data from the US will be released, including retail sales, industrial production, and the CPI index. If inflation data, like on Thursday, shows higher-than-expected numbers and retail sales do not disappoint, Fed rate hike expectation for September could rise further, challenging the current modest bullish bias in the EUR/USD pair. Also, the European Central Bank meeting of next weeks is starting to weight on the euro.