We've seen a decent rebound in the dollar since the turn of the year, albeit one that pales in comparison to the declines in the 10 months that preceded it, but how much further can it go?
The first thing to note is that, despite the best efforts of the Fed, US yields are still elevated as you move down the curve. While this suggests traders are buying the rhetoric in the near-term, inflation risks in the longer run are still believed to be higher than they were. From very low levels, of course.
If that perception remains, the dollar could continue to be well supported in the near-term. Particularly if paired with broader risk aversion in the market, with sentiment seemingly having cooled recently.
The 4-hour EURUSD chart suggests the rebound has further to run having broken the 55/89 SMA band, before finding temporary support around 200/233 and then breaking this as well on Friday.
The daily chart suggests a big test of support lies ahead around 1.20. The 55-day SMA crosses through between the 38.2 and 50 fib levels and a break of these would break major psychological support along the way. This would seemingly confirm the moves that we're already seeing on the 4-hour chart.
Further support remains below here, with the 89-day SMA and 61.8 fib being the last lines of defence, a significant break of which may indicate we're seeing a much broader correction in the dollar.
A rotation higher could emerge after a modest correction but given how far the pair has moved over the months, it may be a little overstretched in the near term and a broader correction may make more sense.
The first thing to note is that, despite the best efforts of the Fed, US yields are still elevated as you move down the curve. While this suggests traders are buying the rhetoric in the near-term, inflation risks in the longer run are still believed to be higher than they were. From very low levels, of course.
If that perception remains, the dollar could continue to be well supported in the near-term. Particularly if paired with broader risk aversion in the market, with sentiment seemingly having cooled recently.
The 4-hour EURUSD chart suggests the rebound has further to run having broken the 55/89 SMA band, before finding temporary support around 200/233 and then breaking this as well on Friday.
The daily chart suggests a big test of support lies ahead around 1.20. The 55-day SMA crosses through between the 38.2 and 50 fib levels and a break of these would break major psychological support along the way. This would seemingly confirm the moves that we're already seeing on the 4-hour chart.
Further support remains below here, with the 89-day SMA and 61.8 fib being the last lines of defence, a significant break of which may indicate we're seeing a much broader correction in the dollar.
A rotation higher could emerge after a modest correction but given how far the pair has moved over the months, it may be a little overstretched in the near term and a broader correction may make more sense.