For the better part of this year, the dollar has enjoyed a solid bullish run. A more hawkish Fed and higher Treasury yields have fueled appetite for the greenback, with equities seen struggling and a lack of safety alternatives in broader markets (no thanks to Japan of course).
And despite the Fed reaffirming a more hawkish resolve last week, broader market sentiment has recovered rather well after its post-Fed knock and that has kept dollar bulls at bay since the end of last week. In fact, the technicals are also starting to reveal some vulnerabilities and that could result in painful correction in the dollar if the right conditions do line up.
Two key charts that have made some headway this week are EUR/USD and AUD/USD.
The former has broken above its 100-day moving average (red line) for the first time since February and that is a significant technical development for the pair. That said, the October highs at 1.0087-93 are still holding for now before any real potential push back towards 1.0200 next.
Meanwhile, AUD/USD has also rallied strongly this week in a push back above 0.6500. The daily close yesterday was barely above the key level so I wouldn't call it a firm break just yet but any modest upside momentum in the sessions ahead could see a rush towards the 100-day moving average (red line) at 0.6707 next.
A case can also be made for USD/CAD as it broke below support near 1.3500, so that just adds to the dollar's recent state of exposure:
All this seems to be gearing towards a potential breakdown in the dollar, at least from a technical perspective, that could result in a deeper correction after the run higher for the most part in 2022.
The US CPI data tomorrow and the reaction is going to be a crucial one that determines what comes next.
