What looked initially to be another pullback within a recovery uptrend for the US dollar (USD) has accelerated into something far more significant. A deep correction has taken hold and sentiment for the dollar has shifted decisively negative. 

For months, we have been positioning for a USD recovery during the first half of 2021. Then later in the year as a post-pandemic rally on risk assets kicks in, we have been expecting USD to be sold off again. It would appear that this sequence for USD has come earlier than anticipated. This is showing through the technical analysis across major forex.

  • The dollar sell-off has accelerated even as US yields have picked up in recent days. The Dollar Index has subsequently broken crucial support.

  • EUR/USD has broken decisively above key resistance at 1.1990, opening 1.2200. 

  • How major pairs react to retracement moves will now be key. 

Dollar down even as yields have picked up

There has been a notable shift in the past week. USD has been sold off as Treasury yields have picked up. This is not yet showing through in the correlation, however, given the significant decline in USD yesterday and further selling pressure today, it is clear that markets are now viewing the dollar in a different light. The dollar has been seen as a classic safe haven amidst increasing inflation expectations of the past few months. Expectations of inflation have moderated in the past few weeks and the dollar is being pressured. This suggests that the dollar performance will continue to struggle.

Chart/US 10 year Treasury yields

Dollar Index has broken below a crucial technical support at 91.30. This was the first decisive higher low of the recovery which kicked into gear in March. Breaking this support now breaches the recovery uptrend. The move has opened the key lows between 89.20/89.70 from January/February.

Chart/Dollar Index

It now means that a lower high would complete the renewed negative outlook for Dollar Index. On the chart, we would be looking for a lower high between 91.30/92.15.

EUR/USD has broken clear above key resistance

EUR/USD accounts for just over half of the Dollar Index, so the charts do tend to be mirrored. Subsequently, as the Dollar Index has broken below 91.30 in recent days, this has coincided with EUR/USD moving through the key resistance at 1.1990. 


Technically this was a key move as it came with confirmation across several momentum indicators. The Relative Strength Index (shown above) moving to a three month high, along with a buy signal on the Moving Average Convergence/Divergence (MACD). The move has opened upside towards the highs of 1.2190/1.2240.  

Key moves shown across major pairs

There have also been key moves across other major pairs:

  • USD/JPY – breaking below 108.35 has opened 107.00

  • USD/CHF – a decisive move below 0.9185/0.9215 opens 0.9000/0.9040

Although some are yet to still to confirm the move:

  • GBP/USD – needs a decisive close above 1.4000

  • AUD/USD – needs a clear closing break above 0.7800

  • USD/CAD – looking for a decisive close below 1.2500

  • NZD/USD – needs a move through 0.7270

Looking to sell USD into a technical rally

These decisive breakdowns are key. Old support becomes new resistance and it means that we are now looking at the reaction to a near-term technical rally on USD. If resistance begins to form around the old break levels then it would be confirmation of a new medium-term negative outlook on USD and a chance to sell.