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The U.S. dollar was pinned down on Tuesday, as vaccine optimism boosted the British pound to an almost three-year high, while rising oil prices and buoyant expectations for global recovery supported commodity and trade-exposed currencies.
In trade thinned by Lunar New Year holidays in China and Monday’s U.S. holiday, the positive mood also weighed on the safe-haven yen which made a one-week low on the dollar overnight and fell to more than two-year lows on the euro and the Aussie.
The U.S. dollar index, which measures the dollar against a basket of six major currencies, sat at 90.351, not far above a two-week low it struck last Wednesday.
The risk-sensitive Australian dollar held near Monday’s one-month high at $0.7785.
“The dollar tends to underperform when you see this broad positive sentiment in markets,” said Rodrigo Catril, senior currency strategist at National Australia Bank in Sydney.
“There are also inflationary pressures particularly coming from energy prices,” he said, which is pushing up nominal yields — adding another weight on the yen as that can attract flows from Japan — but keeping real returns on Treasuries steady.
Sterling has gained as much as 2.5% on the dollar in less than two weeks as the aggressive rollout of Britain’s COVID-19 vaccination programme has raised expectations its economy will be able to recover more swiftly than European peers’.
The euro was steady at $1.2132 on Tuesday while the yen, which has dropped 2% so far this year, nursed losses at 105.36 per dollar. The yen also hit its lowest since late 2018 against the euro and the Australian dollar and hit a three-year low on the Swiss franc.
“The yen has been the worst performing currency of 2021, with its negative correlation to U.S. Treasury yields proving to be the biggest dampening factor,” said Francesco Pesole, currency strategist at Dutch bank ING in a note to clients.
Ahead on Tuesday, investors are looking to eurozone growth estimates, a German sentiment survey and U.S. manufacturing data to gauge the relative pace of the world’s pandemic recovery.
GBP/USD is retreating from fresh 34-month highs of 1.3951, as the bulls look to test bids around the 1.3920 region, where the upward-sloping 21-hourly moving average (HMA) coincides.
The upside bias remains intact so long as the price holds above the latter. Acceptance below that level could trigger a fresh profit-taking slide towards the bullish 50-HMA, now at 1.3876.
The hourly relative strength index (RSI) has turned south but holds well above the midline, allowing room for more gains.
Therefore, the bulls are likely to regain control and retest the multi-year highs at 1.3951, above which the 1.4000 psychological target remains on the buyers’ radars.
EUR/USD – 1.2138
Euro’s rebound from 1.2082 (Friday) to 1.2144 yesterday suggests re-test of last week’s 1.2149 high would be forthcoming soon due to renewed usd’s weakness on risk appetite, above would extend upmove from Feb’s 1.1953 trough to 1.2190, loss of upward momentum should cap price below daily res at 1.2222.
Only below 1.2082 dampened bullishness and may risk stronger retracement of said rise to 1.2045/50.
GBP/JPY steps back from the recently flashed multi-month high to 146.89 while heading into Tuesday’s European session. Even so, the quote prints 0.28% intraday gains while keeping Friday’s upside break of February 2020 peak.
As a result, the GBP/JPY bulls are less concerned with the recent pullback until it breaks the stated one-year peak, around 145.00. Also acting as an extra filter to the south could be the 10-day SMA level of 144.95 as well as the previous week’s low near 144.00.
In a case where GBP/JPY bears dominate past-144.00, the yearly support line near 143.80 becomes the last barrier for them to conquer before eyeing the September 2020 high of 142.71.
Meanwhile, the fresh upside will eye for the December 2019 high of 147.95 before targeting the ascending resistance line from June 2019, at 148.51 now.
It’s worth mentioning that the GBP/JPY run-up beyond 148.51 will attack the March 2019 high of 148.87, a break of which enables the bulls to target the 150.00 psychological magnet.
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