- US dollar shows less strength.
- USDJPY rallies on easing Omicron concerns.
- USDCAD rises on oil price pressure.
US dollar strength eased Tuesday morning amid improving market appetite for risk assets and currencies. The dollar is also on the back foot in the aftermath of Democrats suffering a big blow on their spending plans in the US.
However, the dollar index, which measures greenback strength against the majors, continues to hold on to gains above the 96.40 level, near 16-month highs. The dollar continues to hold firm amid surging cases of Omicron variant that threatens to plunge the global economy into peril.
USDJPY breakout looms
Despite the dollar softness across the board, USDJPY edged higher to 4-days high above the 113.75 level. The pair is on the bounce back after plunging to two-week lows on Friday as surging cases of Omicron and fears sent investors scampering for safety in the Japanese yen.
Following the bounce back, USDJPY is staring at strong resistance near the 113.80 level. A rally followed by a close above the level could pave the way for bulls to fuel a rally to the 114.28 level. A rally followed by a close above the 114.28 could lead to a rush to the 115.00 handle.
On the flipside, USDJPY struggling to rally and find support above the 113.80 level could trigger renewed sell-off that could see the pair dropping to the 113.50 level, below which it could tank to lows of 113.10.
The bullish momentum on the USDJPY is supported by a solid recovery in global risk sentiment, as depicted by renewed buying pressure in the equity markets. Improving sentiments has significantly undermined the Japanese yen demand as a safe haven.
In addition, an uptick in US Treasury bond yields is another major factor fuelling dollar strength, consequently fuelling the bullish momentum on the USDJPY pair. However, traders remain cautious against placing more aggressive trades on the USDJPY pair.
The cautionary approach stems from growing concerns over the long-term impact of the Omicron variant. A string of new restriction measures worldwide continues to send jitters, consequently affirming yen demand as a safe haven.
Investors are also reluctant against aggressive moves in the market owing to the lack of relevant market moving economic releases. Thin liquidity conditions depicted by a decline in trading volume could avert strong moves on the USDJPY pair.
USDCAD at 4-month highs
Meanwhile, the Canadian dollar remains on the defensive against the dollar after weakening to four-month lows. A slide in oil prices below the $70 a barrel is one of the factors fuelling CAD weakness across the board, consequently fuelling the upward momentum on the USDCAD pair.
The pair has already touched four-month highs of 1.2963; while it has pulled lower slightly, the bullish momentum remains intact amid the dollar strength across the board. A rally followed by a close above the 1.2970 level could open the door for a rally to highs of 1.3000.
Conversely, USDCAD faces strong support near the 1.2910 above, which remains bullish. A breach of the support level could attract short sellers into the fold, which could result in the pair pulling back to lows of 1.2836
As it stands, USDCAD sentiments depend on the direction of oil prices. A bounce back on oil prices should attract more bids on the CAD, which could result in the USDCAD retracing lower. Similarly, a rise in treasury yields fuelling dollar strength could affirm the bullish momentum on the USDCAD, resulting in it rerating to highs of 1.3000 levels.
Meanwhile, the Turkish Lira weakness remains intact, with the currency plunging to a record low of 18.34 against the dollar. The currency remains under pressure on traders shunning it at the back of the central bank, fuelling inflationary pressures.