Dollar reluctant to give up key levels

Yesterday we saw a correction in equities developing in the markets. This provided temporary support for the Dollar index, which stabilised close to its February lows, near 90.

It looks like we are only seeing a brief consolidation in the dollar after Friday's dip, as selling of the dollar has paused but not reversed near the local extremums.

In EURUSD, buyers encountered bearish pressure as they approached 1.2180. From this area, the pair has been methodically reversing downwards for the past four months. Not surprisingly, the bulls have to get their act together before taking on local highs. The pair's pullback seems like a consolidation after a jump rather than reversal, indicating the strength of USD bears.

The same can be said for GBPUSD, where the rise has stalled at 1.4150 after a 2% jump to February highs.

The Chinese renminbi stopped rallying when it reached 6.40 per dollar, near three-year lows last seen in February.

The currency market needs a further signal to finally make a move past the previous extremes. The momentum of the declining stock markets has provided a halt in the dollar's retreat, but this one is unlikely to last.

Towards the end of trading on Tuesday, buying in US equities intensified. Waves of positivity spread to Asia despite a shaky start. There was also an increase in buying after a slump to multi-week lows.

US market dynamics indicated that investors were buying back from the slump with increased trading volumes. Before that, the sell-off was taking place on lower volumes. Therefore, today's market dynamics could finally confirm the start of a new upward spiral if the day closes with growth. Should that happen, support for the dollar will further weaken, allowing it to renew lows. In the cases of CAD, GBP, CNH, it will be new multi-year highs against the dollar.