Dollar Trims Its Losses As Risk Tones Turn More Tentative

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After a positive start to the week, a poor risk backdrop started to reemerge on Wednesday, pushing the safe-haven dollar and yen higher. A still challenging global economic and geopolitical backdrop keeps playing into dollar’s hands, while the tighter Fed policy adds to the buck’s appeal. 

As such, the USD index managed to hold above the 103.00 figure and jumped above 103.70 earlier in the day before retreating partially ahead of the opening bell on Wall Street. After the unrelenting rally seen over recent weeks, the greenback may be lacking the bullish momentum at this stage, but the overall bullish trend is still alive and kicking. 

Interestingly, the dollar is pressured versus the Japanese yen on Wednesday, with the pair holding below 129.00 during the European hours. USDJPY has been struggling around the 20-DMA for the fifth consecutive session in a row, holding below the 130.00 figure these days. The pair looks unlikely to regain this immediate barrier in the near term, albeit the overall bullish trend remains intact. 

The current price action is likely a part of consolidation, and the dollar is expected to continue to trade sideways within a range around the mentioned 20-DMA. However, as the prices derailed the 128.70 intermediate support, a deeper retreat could be expected in the near term.  

The fact that the Japanese yen started to benefit from risk aversion suggests USDJPY could struggle below 130.00 for some time. However, the dollar hasn’t probably peaked yet and could get back to multi-year highs above 131.00 due to Fed’s aggressive response to the rising inflation.