The USD is showing a modest rebound as global bonds recover, particularly due to speculation regarding Japanese bond issuance. Gains are noted against major currencies, with the JPY underperforming while the MXN and CAD remain more resilient.

Despite the current USD gains, the broader downtrend continues, influenced by economic concerns such as tariffs, US fiscal policies, and relations with the Fed. Fed’s Kashkari indicated that a slower policy approach may be warranted due to tariff uncertainties.

Dxy And Economic Influences

The DXY’s short-term downtrend persists, with gains expected to stay within the 99.85/100.15 range. Challenges for the USD include historic valuation concerns and the potential for a longer-term performance adjustment.

US Durable Goods data for April is anticipated to show a reversal of -7.8% from a previous 9.2% rise in March. May Consumer Confidence is predicted to increase to 87.1, alongside housing market reports. The Treasury is auctioning USD69bn in 2Y bonds, while Australia’s April CPI data and New Zealand’s rate cut to 3.25% are also scheduled.

The short bounce in the US dollar appears to be largely tethered to shifts in global bond yields, with increasing attention on possible policy moves from Japan. Recent speculation has raised the idea that Japan might expand bond issuance, which is feeding yield differentials and nudging capital flows into the greenback. Interestingly, while the yen has found itself on the weaker side of this adjustment, currencies like the Canadian dollar and Mexican peso have held up better—possibly a reflection of stronger local fundamentals or simply less exposure to shifts in Japanese debt expectations.

That said, we’ve observed an underlying theme continuing to pressure the dollar lower over recent months, and that hasn’t yet changed meaningfully. Market concerns are leaning back towards how US fiscal choices, like spending plans and tariffs, might weigh on future economic performance. These anxieties aren’t theoretical. Policymakers are already alluding to a “watch and wait” approach, with Kashkari pointing out real hesitations about how trade policy choices will shape the broader economic picture.

Dollar Index Challenges

The dollar index, still facing headwinds from longer-term valuation arguments and structural drag, is currently struggling to extend much beyond the narrow resistance zone stretching just above 100. Moves in that region are worth watching—not because they’re likely to be decisive, but because failed attempts to rise above them could set off accelerated selling. If we start to see fresh signs that US data softens or the Fed gets colder feet, downside risks could return swiftly.

Durable goods figures are one of the next big markers. A swing from last month’s sharp gain into negative territory would do little to support a strong dollar case—especially if it’s paired with housing or sentiment data that shows only modest improvements. On the other side of the Pacific, with Australia releasing fresh inflation numbers and New Zealand trimming rates again, pressure on their currencies might build. That could offer short opportunities, especially if rates expectations in those regions deviate sharply from what’s priced in.

However, we’re watching the 2-year Treasury bond auction closely. A poor reception could push US yields wider, adding temporary support to the dollar. But don’t read too far into one event; a soft auction might reflect technical factors, especially with quarter-end approaching and balance sheet tensions rising.

For those involved in derivatives trading, timing remains everything. Expect choppy conditions to persist as macro data points take turns dictating price direction. There’s no immediate catalyst to reverse the underlying trend, but short-term movements linked to bond markets, rate speculation, and sentiment indicators will be creating opportunities—both long and short—over the coming weeks. It’s these micro-events, playing out within broader macro themes, that can shift pricing fast. Some moves will stretch briefly beyond models and reversion zones, so keeping risk parameters active and adjusting exposure dynamically gives a measurable edge.

Create your live VT Markets account and start trading now.