Stocks back in negative territory, underpinning demand for the safe-haven buck ahead of US retail sales data

The dollar keeps trading in a tight range on Monday, holding steady around 104.50 as market optimism wanes following the early recovery attempts. Wall Street equities rallied on Friday amid widespread recovery in risk demand ahead of the weekend. However, the bullish tone abated at the start of the week as extremely weak economic data out of China disappointed global investors even as the authorities said Shanghai to gradually reopen businesses from Monday. The data showed that industrial production plunged 2.9% y/y in March versus +0.4% expected after +5.0% prior, while retail sales contracted 11.1% y/y versus expected -6.1% expected. 

Against this backdrop, risk sentiment deteriorated ahead of the start of the European session, with most Asian equities finishing lower on Monday. Following suit, European indexes opened in negative territory, underpinning demand for the safe-haven buck ahead of US retail sales data due on Tuesday. The dollar could receive another boost from the upcoming report if the figures come in line with expectations for growth of 0.7%. However, should retail sales ex-autos disappoint, the greenback may fail to derive support from the release.

The USD index rallied to fresh twenty-year highs around 105.00 last week and has been refraining from a solid bearish correction since then. The immediate support now arrives at 104.40, followed by the 104.00 mark. As US stock index futures are down more than 0.5% in early pre-market trading while the 10-year US Treasury yield is oscillating around 2.9%, it looks like the dollar could at least stay afloat in the near term, with upside risks persisting despite the overbought conditions.

EURUSD regained the 1.0400 mark in recent trading, but it looks likely the common currency will struggle to overcome the 1.0530 nearest upside target at this stage. The euro may get back below 1.0400 in the short term if investor sentiment keeps deteriorating further. 


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