The retracement in the dollar continues to play out and after a considerable stretch of technical developments, it may not be surprising to see it carry on for a bit more. I mean from a fundamental perspective, the recovery in risk sentiment (which is also arguably overdue) and Treasury yields dropping in the past three weeks is also reason for dollar bets to cool off.
Wall Street has endured seven straight weeks of beating and with deleveraging pressures abating, that is helping for equities to post a solid bounce this week. The S&P 500 is now up 4% on the week, closing in on its 100-week moving average at 4,069 after the low last week tested its 38.2 Fib retracement level at 3,815:
Meanwhile, I highlighted yesterday here on the retreat in bond yields. It seems like the market has looked past rate hikes - at least for now - by pricing in maximum hawkishness by the Fed already. That is particularly evident as pricing for neutral is now much lower and sooner as compared to a week ago. Recession and stagflation risks are certainly part of that consideration.
Those are plausible reasons for the dollar to reassess its run since April, with the technical side of things also part of the deliberation as mentioned yesterday below:
For now, the dollar is lower across the board once again with EUR/USD up 0.3% to 1.0755 as buyers target 1.0800. USD/JPY is down 0.2% to test waters below 127.00 again while GBP/USD is up to a one-month high of 1.2655. Meanwhile, AUD/USD and NZD/USD are also posting modest gains, both up 0.6% to 0.7140 and 0.6520 respectively.
