It's not exactly promising for the dollar as risk trades are showing much more mettle so far this week, building on the rebound from late Monday. Treasuries had some catching up to do but ended up more bid, with 10-year yields dipping back to around 4.64% after bouncing up to 4.70% in European morning trade. And so, that is also putting a bit more of a drag on the dollar on the week.
But is there a feeling that the dollar is looking rather toppish right now? I'm not entirely convinced.
A lot of it depends on where the bond market goes from here and while markets are more assured that rates have peaked, the waves of supply in Treasuries are still making it tough to read the room in its entirety.
The best we can do is to look at the technicals and they are also not suggestive of a breakdown or reversal in the dollar just yet. There are signs of a tentative top but whether or not this will lead to something more remains to be seen.
EUR/USD did fall to its lowest levels since December in trading last week but have mustered a pretty decent rebound after, climbing back above 1.0600 currently. But price action is still not yet testing the first key hurdle in the form of the 23.6 Fib retracement level at 1.0643 for now. And adding to that, there is the potential "death cross" as the 100-day moving average (red line) looks to overlap and fall below the 200-day moving average (blue line).
Then, we have USD/JPY which continues to be underpinned by higher yields in the big picture. The pair might have stalled below 150.00 after Tokyo intervention but continues to consolidate at the highs as noted here yesterday. Unless there is a break in the consolidative pattern and yields follow suit to fall lower, it's hard to bet too strongly against the greenback's prospects for now.
Meanwhile, GBP/USD is more or less depicting the same picture as EUR/USD but just without the potential "death cross".
Then, we have AUD/USD which showed signs of a breakdown towards 0.6200 potentially before turning around that false break to post five straight days of gains to just above 0.6400 now.
However, price still needs to get above 0.6500 in the bigger picture to really justify a major switch in momentum. As such, the recent rebound remains tentative in terms of strength at best I would say.
To conclude, the technical picture shows that the dollar didn't quite follow through on its recent breaks. And that was followed up by strong reversals which coincided with a dip in Treasury yields too. That being said, there needs to be more convincing to really suggest that we are at the apex and a turning point in the rallying leg for the dollar.
