- US dollar is under pressure at 16-month highs.
- EURUSD bounces back amid dollar softness.
- AUDUSD under pressure at 3-month lows.
The US dollar was under pressure Tuesday morning, tanking to near one-week lows as risk appetite in the market grew. However, the greenback remains elevated at 16-month highs, with the dollar index tanking below the 96.00 level and struggling to hold on to gains.
Dollar weakness on Tuesday came at the backdrop of Omicron COVID-19 fears subsiding. Treasury yields edging lower also appears to have hurt the greenback sentiments in the market, triggering the pullback.
EURUSD bounce back
EURUSD is one of the beneficiaries as the US dollar remains under pressure after a recent blockbuster move to 16-month highs. With the dollar looking increasingly overbought, the focus is increasingly shifting to other major currencies battered in recent days.
The EURUSD pair has since powered through the 1.1305 as the bounce back from 17-month lows of 1.1190 continues to gather steam. After the recent bounce back, the pair is staring at short-term resistance near the 1.3320 level.
A break above the short-term resistance level should pave the way for EURUSD to make a run for two-week highs in the 1.1370 level. On the flip side, a breach of the 1.1250 support level could trigger renewed sell-off on the pair that could result in a sell-off back to 17-month lows of about 1.1190 levels.
The bounce back on the EURUSD comes on the backdrop of renewed optimism in the currency market as fears about Omicron continue to subside. Demand for safe-haven such as the dollar has continued to edge lower, resulting in a renewed demand for riskier assets.
Global medicine suppliers oozing in confidence about offering the much-needed vaccines for tackling the Omicron variant should continue to avert fears in the currency market, consequently affirming demand for riskier currencies.
US treasury yields remaining pressured should continue to work in favor of the majors on fuelling dollar weakness. The 10-year bond coupon upward momentum has already cooled off, going by a pullback to the 1.50% level.
However, upward momentum on the EURUSD pair could be curtailed by dovish remarks from officials with the European Central Bank. ECB’s governing council member Pablo Hernandez de Cos has already reiterated that policymakers will avoid any premature tightening of monetary policy while also insisting that inflation is transitory.
The focus is also on a plethora of economic data that should paint a clear picture of the health of the European economy. The latest data shows that German inflation figures jumped to a record high of 6%.
AUDUSD under pressure
Meanwhile, AUDUSD remains under pressure after tanking to three-month lows of 0.7116. The pair has been hurt by a string of negative news, including the Omicron variant and mixed economic data from China.
With the pair under immense pressure, it faces the risk of plunging to one-year highs on breaking below the 0.7100 level. A break below could see the pair tanking to the 0.7000 mark, the next substantial support level.
A recovery in US treasury yields and much firmer Asia Pacific stocks continue to underpin AUDUSD strength. However, the pair continues to find solace in the aftermath of world leaders remaining optimistic about dealing with the Omicron variant that had caused traders to scamper for safety in safe heavens triggering a sell-off of the AUDUSD pair.
However, Australia is pausing plans to reopen borders to some foreign countries amid fears that the COVID-19 variant poses a significant risk to economic recovery. In addition, the risk of the country resorting to lockdowns in case of a spike in COVID cases could continue to weigh heavily on AUD, which could curtail AUDUSD’s bounce back from current levels.