I already highlighted the situation earlier here and we are seeing more of that in European trading today, as traders start to dial back the post-CPI selloff in the dollar. As we meet key technical levels, it is now a question for markets whether or not we are done with the retracement/correction and is there still bullish appetite for the dollar moving forward?
From a fundamental standpoint, not much has changed as the Fed continues to reaffirm that it will hike rates further even though they are also now opening a bit of a gap in the door towards slowing the pace of future rate hikes. Meanwhile, all other major central banks are either equally as dovish or even more so. So, that should keep the dollar in a good spot right?
Well, yes and no. On the one hand, the dollar is still the cleanest shirt among the dirty laundry. But considering how being long the greenback has been the consensus trade for almost the entirety of the year so far, it puts a lot of emphasis on any change in the narrative for the currency as such.
In other words, the dollar will find its previously easy gains harder to come by now but unless we do see major technical levels break one after the other, it is still in with a good shot to come back up after the latest drop in the past week. I'll be highlighting the technicals in my next post.
