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The dollar is leading the charge to start the new week as the latest pullback starts to pose some questions about a potential snap rally in the short-term for the dollar.
Of note, USD/JPY is contesting its key trendline resistance from the middle of last year @ 104.18 and that is keeping things a little more tense to start the week, especially with Treasury yields breaking out to the upside.
Meanwhile, equities are a bit on the retreat to start the week following the solid gains last week – with US indices finishing at a record on Friday.
Going back to the dollar, things are getting a little more interesting now with the dollar index (DXY) moving back above 90.00 upon meeting some support:
I’ve mentioned before that I’m no big fan of the dollar index in general (since it is mostly a reflection of EUR/USD) but the Bloomberg dollar index is reflecting similar sentiment as it also runs into some support from the 2018 lows:
While the argument for a bigger dollar decline is still intact, it doesn’t rule out the possibility of a short-term correction to start the year – especially when you consider the push lower in the greenback since November i.e. post-election.
Ultimately, I would say that it still comes down to the Fed but in the meantime as yields melt up and market positioning is stretched, there is some consideration for the so-called “consensus trade of 2021” to ease up a little as things get started in the new year.
Elsewhere, gold is also threatening a further downside push as it continues to test its 200-day moving average (now at around $1,837). That will be the key level to watch for gold in case the downside momentum extends this week.
That said, I’d be looking to scale in dip buys in gold from here through to the end-November lows; should we see things go further south for gold that is.
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