EUR/USD made a drop on Wednesday amid downbeat retail sales data and uptick in the US Treasury yields. US dollar holds onto recent gains with higher yields, strong ISM Manufacturing PMI and covid concerns.

German retail sales monthly report showed a fall in figure to -5.5% against the previous record of 7.7% and the forecast of 1.2% whereas yearly retail sales report shows a favorable report of 4.4% compared to forecast of 3.7% but it is significantly less than the previous record of 11.6%

Covid concerns also weighs on Euro, Germany reports 4,917 new coronavirus cases, 179 deaths in latest update today but German government is surely going to stick with plans to ease restrictions over the coming weeks.

On the other hand, U.S. manufacturing activity rose in May, the Institute for Supply Management (ISM) said on Tuesday, as pent-up demand boosted orders in a reopening economy, even though unfinished work piled up because of shortages of raw materials and labour.

Carlos Casanova who is senior Asia economist at Union Bancaire Privee in Hong Kong, said reopening expectations had overtaken concerns about inflation.

“Yes, inflation will overshoot in the short term but the Fed is cognizant of that risk and they are looking at a dual target of full employment and inflation. So that has made investors less concerned potentially about the pace of Fed tapering this year, focusing more on the pace of reopening this year (and ) leaving that concern about tapering for next year or beyond,” he said.

Elsewhere, recent comments from the Fed policymakers have been mixed but positive chatters over the Sino-American trade deal has helped the greenback to make some recovery. Also favoring the sentiment is the news suggesting a $50.00 billion investment in developing economies by the International Monetary Fund (IMF), the World Health Organization (WHO) and other institutions.

EUR/USD 4 Hour Chart:

Support: 1.2198 (S1), 1.2183 (S2), 1.2155 (S3).

Resistance: 1.2241 (R1), 1.2269 (R2), 1.2284 (R3).

As US shows some recovery and downbeat German retail sales report weigh on Euro ahead of ECB President Lagarde Speech which is watched by investors for clues. In the meantime we expect a bearish trend for EUR/USD.