The dollar trades firmer to little changed versus most competitors as early weakness was reversed at the beginning of the American session after better-than-expected U.S. data. Despite positive sentiment among financial markets, the euro and other currencies lacked momentum and failed to sustain gains versus the greenback.
Stocks printed broad gains in global markets, with the Dow Jones reaching yet another record high on Tuesday. The Dow rose 130 points, or 0.9%, to 14258, surpassing its earlier intraday high of 14198.10, set in October 2007.
On the economic front Tuesday, the U.S. ISM services-sector PMI expanded more than expected in February, and reached its highest level in a year at 56. European data was positive, with eurozone retail sales rising more than expected in January, while eurozone services PMI was also mildly positive.
"With the Italian political situation still somewhat uncertain, back and forward trading could continue ahead of key jobs data and central bank meetings towards the end of the week," said Nick Bennenbroek, Head of Currency Strategy at Wells Fargo Bank.
Euro Fails To Sustain Gains
The euro failed to benefit from positive data and the rally seen in stocks. EUR/USD climbed to the 1.3080 zone, but lacked conviction to extend gains and pulled back as investors remain cautious ahead of the ECB meeting and the U.S. government's employment report on Friday.
Failure to recover above 1.3100 reinforces the broad bearish view for the cross and focuses the 1.2900/08 area as the next target (round figure/ Fib 76.4% of 1.2660/1.3710) ahead of the 1.2880 zone. On the other hand, a break above 1.3100 would favor a steeper recovery, although a regain of the 1.3160 area (February 28 high) would improve the outlook.
In this regard, the TD Securities team notes that the EUR continues to look soft, and "we still look for a test of the 1.2880/2900 area in the coming weeks," they say. "The first hurdle is Friday's low near 1.2980."