The greenback is continuing its recent softness over the past few sessions today, with the more positive risk sentiment also bolstering commodity currencies.
But even against the likes of the euro and pound, the dollar is seen trading weaker with the former rising back above 1.1600 and the latter nearing 1.3700 - its highest in over two weeks - at the moment.
Of note, EUR/USD has seen buyers seize near-term control on a push above its key hourly moving averages @ 1.1563-72 since overnight trading.
However, price action is still arguably contained in and around the key weekly moving averages @ 1.1570-10 as seen below:
While the dollar is holding slightly weaker on the week, I would still argue that any material weakness in the greenback is going to be hard to come by.
The pause in the surge in Treasury yields is perhaps a factor that is seeing dollar firmness retrace over the past few sessions but I don't see much of a case for yields to drop back towards the levels we have seen about a month ago.
As such, with Treasury yields keeping elevated, there is a case for the dollar to keep on the firmer side in the bigger picture. That being said, the market has basically priced in Fed taper expectations already and as such, rate hike expectations are the critical factor that needs to be assessed when viewing the dollar.
After the US CPI report yesterday, Fed funds futures were showing a 90% chance of a September 2022 rate hike and I'm not too sure about holding such confidence at this point in time to be honest.
The Fed has made it clear that the tapering and rate hikes are two relatively distinct set of events and while the former is indeed teeing up a latter move, a lot can change between now and June next year. Inflation pressures are still key.
In any case, going back to EUR/USD price action, there is scope for resistance around 1.1610-15 (100-week MA and 23.6 retracement level of swing move lower from September to October) to hold but we could see gains stretch back towards the 1.1670-00 region if yields see room for some retracement for the time being at least.
But I would not expect the upside to stretch beyond 1.1700 barring any major changes to the fundamental landscape at this point in time.