The US currency remains elevated and steady ahead of fresh economic data

Market sentiment has improved on Tuesday as investors cheered US-China talks, with the focus now shifting towards the upcoming US retail sales data. A virtual meeting between US President Joe Biden and China’s President Xi Jinping triggered a risk-on tone across the markets.

Biden said that US-China relation is profoundly important to the world while China’s Xi noted he stands ready to move US-China relations forward in a positive direction. US President Biden’s formal signing of the $1.0 trillion infrastructure spending bill added to a more upbeat mode in the markets.

Against this backdrop, the safe-haven dollar slipped marginally earlier in the day. However, the US currency remains elevated and steady, consolidating recent gains around the highest levels since mid-2020 ahead of retail sales data due later today. 

October retail sales are expected to increase by 1.5% (up from September’s 0.7% gain) boosted by higher gasoline prices. After a very strong October’s jobs report and hot inflation numbers, if the number is as expected, the dollar would stage another rally across the board later in the day.

EURUSD plunged to fresh long-term lows around 1.1355 on Monday amid a combination of a stronger dollar and dovish comments from the ECB Governor. Christine Lagarde said that conditions for a rate hike are very unlikely to be met in 2022, and price pressures on goods and services are expected to normalize as recovery continues and supply bottlenecks unwind.

Today, the euro attempts to stage a bounce as dollar demand has eased somehow. However, the pair struggles to regain the 1.1400 figure, staying on the defensive, with bearish risks persisting in the short- to medium-term. Should the selling pressure reemerge anytime soon, EURUSD may challenge the 1.1300 level last seen in July 2020.  


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