• EUR/USD pair has bounced off four months lows, taking advantage of dollar weakness across the board. The ECB policy meeting on Thursday is the immediate event that could go on euro strength.
  • The British pound is also seen strengthening taking advantage of dollar weakness. Pound strength also stems from growing confidence that the FED will move to stem further gains on Treasury yields.
  • Commodity currencies led by the Canadian, Australian, and New Zealand dollars are also seen strengthening in response to dollar weakness and rising commodity prices.

Major currencies led by the euro, British pound, Australian dollar, and the Canadian dollar bounced back after coming under pressure on Monday. The bounce-back came as the dollar trimmed its gains after rallying to a three-month high on Monday.

Euro winning form

After plummeting to four-month lows against the dollar at the start of the week, the euro showed some rare winning form in the Tuesday trading session, trimming some of the losses. The currency was up by 0.46%, briefly taking up the 1.1915 level before retreating to the 1.189 handles.

The euro has been under pressure in recent weeks after pushing close to the 1.23 line in February. The euro weakness can be attributed to, among other things, the greenback getting a boost from two-year lows on rising Treasury yields.

EUR/USD chart

Focus on the euro now shifts to the European Central Bank policy meeting on Thursday. The report could have a significant say on how the currency trades against the dollar heading into the weekend. It is still unclear how the ECB will respond to the rising euro yields at the back of high oil prices.

Likewise, the Eurozone economy remains exceptionally fragile owing to the COVID-19 pandemic as the vaccine rollout proceeds slowly… Rising bond yields translate to higher borrowing costs, something that could impede economic growth going forward.

Pound bounce back

The GBP/USD is another pair showing some winning form after plunging to one-month lows at the start of the week. The cable regained its footing on Tuesday, bouncing back to the 1.39 level after initially slipping to the 1.37 level.

The sterling maintained the bid tone throughout the European trading session. The bounce-back was mostly driven by broader-based dollar weakness. The British Pound also received support on the growing expectation that the FED will take some action to curtail the further rise in long-term borrowing costs triggered by rallies in the Treasury yields.

GBP/USD chart

However, growing expectations of a faster US economic recovery limited British pound gains against the dollar. Traders remain bullish about the dollar, given the plethora of positive economic releases in recent weeks. The passing of the much-awaited $1.9 trillion stimulus package has also triggered bullishness on the US economy, conversely working on greenback strengths.

Canadian dollar 50 pips gains

The Canadian dollar is another currency in recovery mode, bouncing off five days low on broader greenback weakness. The loonie rose by more than fifty pips during the European and early New York trading season.

The USD/CAD found support above the 1.265 level after initially plunging to five-day lows of 1.259. Bullishness in the Canadian dollar could also be attributed to a spike in commodity prices, with oil prices retaking the $70 a barrel level early in the week.

USD/CAD chart

Canada being a net exporter of black gold means it is well-positioned to earn more on oil prices rallying. Conversely, higher oil prices always go a long way in fuelling the bid tone on the CAD.

Aussie and kiwi gains

The Australian dollar, another commodity currency, appears to have hit strong resistance at the 0.7700 level after bouncing off five days low registered on Monday. The AUD/USD pair regained a rare bid tone in recent days as the dollar weakness persisted across the board. The bid tone on the Aussie was also supported by a spike in commodity prices early in the week.

NZD/USD chart

The New Zealand dollar is another currency benefiting from broader US dollar weakness. The NZD/USD bounced off one and a half month lows on rallying by more than 0.60% in the Tuesday trading session. The kiwi has held firm against the dollar as traders reacted to the country’s handling of the COVID-19 pandemic. The economy has rebounded significantly, conversely offering support to the NZD.