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The dollar climbed to a one-year high against the yen on Tuesday amid a spike in Treasury yields, as accelerating vaccinations and massive stimulus in the U.S. stoked inflation concerns.
The safe-haven greenback also found support as investors fretted about the potential fallout from the collapse of a hedge fund, identified as Archegos Capital, although those jitters had eased as the Asian trading day got underway.
The dollar rose as high as 109.89 yen in Asia on Tuesday, a level not seen since March of last year. It’s on track for the best month since late 2016, with the end of Japan’s fiscal year this month driving up dollar demand as companies seek to square their books.
The euro languished near the 4-1/2-month low of $1.1763 reached on Monday, on course to fall by the most this month since mid-2019.
Tougher coronavirus curbs in France and Germany have dimmed the short-term outlook for the European economy, while a widening spread between U.S. and German bond yields are adding pressure on the single currency.
Higher yields make a currency more attractive as an investment.
The dollar index hovered near a 4-1/2-month high of 92.964 reached on Monday.
The monthly U.S. non-farm payrolls report will be closely watched at the end of this week, with Federal Reserve policymakers so far citing slack in the labor market for their continued lower-for-longer stance on interest rates.
“In a week when the market is feeling so optimistic about the forthcoming payrolls release, it seems very likely that the greenback will find strong support,” with the dollar index looking to test 93, Rabobank currency strategist Jane Foley wrote in a report.
However, “the market is in danger of pricing in too much inflation risk,” meaning “we see scope for the USD to soften in the months ahead,” the report said.
USD/CHF holds steady around 0.9395 while keeping the previous days upside during the pre-European session trading on Tuesday.
In doing so, USD/CHF justifies overbought RSI and fears of fading the upside momentum before hitting the key hurdle, namely 61.8% Fibonacci retracement level of March 2020 to January 2021 downside.
While the pullback moves can eyes 50% Fibonacci retracement level of 0.9330, any further weakness will be challenged by 21-day SMA and two-month-old rising channel formation’s support, around 0.9295. Also highlighting the importance of the 0.9295 support level is the September 2020 top.
Alternatively, USD/CHF buyers will look for a fresh 8.5-month high before attacking the key Fibonacci hurdle to the north, close to 0.9465.
It should, however, be noted that the pair’s upside past-0.9465 will be tamed by the said channel’s resistance line surrounding 0.9600.
GBP/USD declined below 1.3780 and is moving towards 1.3745
GBP/USD declined below the support at 1.3780 and is slowly moving towards the next support level which is located at 1.3745. RSI remains in the moderate territory, and there is plenty of room to gain additional downside momentum in case the right catalysts emerge.
In case GBP/USD declines below the support level at 1.3745, it will head towards the next support at 1.3710. A move below the support at 1.3710 will open the way to the test of the support at 1.3665. The previous pullback was stopped near this support level, so I’d expect increased interest from traders if GBP/USD gets closer to 1.3665.
On the upside, the nearest resistance level is located at 1.3780. In case GBP/USD gets above this level, it will head towards the resistance at 1.3800. A successful test of the resistance at 1.3800 will push GBP/USD towards the next resistance at the 50 EMA at 1.3820. A move above the 50 EMA will open the way to the test of the resistance at the 20 EMA at 1.3830.
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