Safe-haven currencies like the Japanese yen and Swiss franc came under pressure as positive risk sentiment persists
The US Dollar staged a local reversal on Tuesday, extending the recovery today. The greenback cheered upbeat US manufacturing activity data that pointed to the country’s economic recovery from the pandemic. Also, the USD received a boost from rising US Treasury yields.
Against this backdrop, EURUSD retreated from more than two-year highs around 1.20 and extended losses to the 1.1850 area in recent trading. However, the downside potential for the pair looks limited, with the bullish trend remaining intact as the greenback has lost its appeal considerably over the past weeks. So, the common currency could see another leg lower before the bulls reenter the game and send the pair to fresh long-term highs. Once above 1.20, EURUSD could target the 1.2070 region last seen in May 2018.
Furthermore, the US currency could come under renewed selling pressure in the days to come if the key employment report due on Friday disappoints and reinforces expectations of additional stimulus measures from the Federal Reserve.
Meanwhile, safe-haven currencies like the Japanese yen and Swiss franc came under pressure as positive risk sentiment persists in the global financial markets. USDJPY extends gains for the third day in a row but is yet to confirm a break above the key 20-daily moving average on a daily closing basis in order to continue the recovery from recent lows around 105.00.
USDCHF briefly jumped to nearly two-week highs around 0.9136 but failed to extend the local rally and retreated in recent trading, suggesting dollar demand remains too sluggish to bet on more sustainable gains in the short- to medium-term.
On the negative side, the Fed’s Barkin said that the labor market recovery has been slower than anticipated, and the Federal Reserve will need to continue to provide significant and sustained support to the economy. Despite those remarks weren’t anything new, this could cap further recovery in the dollar in the immediate term.
