Market Analysis

The EUR/USD pair is trading with slight losses around 1.0950 during early European hours on Tuesday. The improved risk sentiment is providing some support to the Greenback, limiting the major pair's gains. Traders are anticipating the release of Eurozone Retail Sales data, which is expected to show a modest increase of 0.1% year-on-year in June.

On Monday, a sell-off spread across financial markets as investors worried about a potential recession in the US economy, causing the US Dollar (USD) to drop to year-to-date lows near 102.15. However, a shift in global risk sentiment has eased some market fears. "Markets panicked after the U.S. employment report on Friday," said Andrzej Szczepaniak, an economist at Nomura. Currently, traders are pricing in approximately 60% odds of an emergency rate cut by the US Federal Reserve (Fed).

Chicago Fed President Austan Goolsbee noted on Monday that the Fed would respond if economic or financial conditions worsen. Any comments from Fed officials hinting at earlier rate cuts could undermine the USD in the near term.

On a positive note, the US ISM Service Purchasing Managers Index (PMI) surpassed expectations, rising to 51.4 in July from 48.8 in June, according to data released by the Institute for Supply Management (ISM) on Monday.

In addition to the potential emergency Fed rate cut, investors are also expecting the European Central Bank (ECB) to reduce interest rates by 0.5 percentage points at its next meeting in September. The Eurozone Retail Sales data on Tuesday might provide insights into the economic condition in the Eurozone and the ECB's rate cut trajectory. Stronger-than-expected readings could boost the Euro (EUR) against the USD.

Paraphrasing text from "FX Street" all rights reserved by the original author.