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Dollar Index Could Be Capped by 94.46 Fibonacci Level as Yields Rally Halts

Dollar had been the strongest for most of the week but lost it first place at the time, as treasury yields retreated. Instead, resilient risk appetite in the US, as well as firm oil price helped Canadian and Australian Dollars stole the first and second place. On the other hand, Euro ended as the worst performing one, weighed down particularly by selloff in crosses. New Zealand Dollar was the second worst.

As rally in yield lost steam and stocks proved to be resilient so far, we’d argue that Dollar index might not be ready to take out 94.46 key fibonacci resistance yet. But a bearish reversal in the greenback is not expected for now. A question ahead is whether Euro’s selling would persist even if Dollar turns into consolidation. In particular, the common currency looks rather vulnerable against Canadian Dollar.

DXY taking on key fibonacci resistance at 94.46

Dollar index rose to as high as 94.50 last week as the rise from 89.53 extended. Overall near term bias is bullish with the rally above both 55 day and 55 week EMA. Sustained trading above 38.2% retracement of 102.99 to 89.20 at 94.46 will carry larger bullish implication. That is, rise from 89.20 is already reversing the whole down trend from 102.99 (2020 high). In this case, stronger rally would be seen to 61.8% retracement of 97.72 and possibly above. However, rejection by 94.46 fibonacci level, followed by break of 91.94 support, will argue that price actions from 89.20 are merely just a consolidation pattern, and revive medium term bearishness.

10-year yield lost upside momentum after hitting 1.567

For DXY to power through 94.46 fibonacci resistance mentioned above, the markets might need to see further sustained rally in treasury yields. While 10-year yield hit as high as 1.567 last week, it retreated notably to close at 1.465, just slightly above prior week’s close at 1.460. It remains to be seen if that’s just a result of quarter-end repositioning. Or, the selloff in bonds is really running out of steam. Or investors are getting easier on inflation threat.

For the near term, TNX might dip back towards 55 day EMA (now at 1.368). We’d expect strong support from there to contain downside. Rise from 1.128 is still expected to resume later in the year to retest 1.765 high. But the pull back in yields could start to cap Dollar’s rally for the near term.

DOW holding above 23.6% retracement as sideway consolidation continued.