The US dollar continues to hold up quite well despite the recovery in stocks and metals, while US Treasuries are also seeing some buying. For now, we see this bond recovery as a potential wave four, so if the turns lower again into wave five, yields would likely push higher, and this could keep the dollar supported.
At the same time, is pulling back after its recent strong rise, but this could also be just a wave four correction, with a nice support area around 99.90–100.00. As long as this area holds, another push higher on the dollar remains possible.
The Bank of Japan also raised rates by 25 basis points today, from 1.00% to 1.25%, the highest level in 31 years. However, is not coming down on the news and the yen actually weakened after the decision. The hike was widely expected and largely priced in after the sharp USD/JPY decline from the September highs.
Also interesting is that the decision was 7–2, with two members preferring to keep rates unchanged, which helped limit the hawkish impact of the hike. So overall, markets are seeing some recovery in risk assets and metals, but the dollar is still holding firm.
The next important signal could again come from US Treasuries. If bonds complete this wave four rebound and turn lower into wave five, then yields could resume higher and support another leg up on DXY. For now, 99.90–100.00 is the key dollar support zone to watch.
