A first glance at the market dynamics yesterday indicates that the bulls have directed all their strength and liquidity to buy shares of technology giants in the US. Other sectors and related markets were under a tangible sell-off.

We are primarily focused on the persistent buying of the dollar against key competitors. The EURUSD had a strong move below the 50- and 200-day averages and the psychologically important round 1.2000 level, coming in at 1.1900 versus 1.2100 two days earlier.

Slightly softer was the reversal in GBPUSD. The pair has been hitting the shelf at 1.4200 since the middle of last month and has been steadily retreating this week, dropping to 1.3900 at the time of writing.

Betting on the US currency's decline has been a very popular trading strategy over the last year or so. Comments from the Fed earlier in the week seem to have triggered a wave of short position liquidation. The Dollar Index has posted its sharpest rise since March 2020 over the past two days and continues to rise further on Friday morning.

Such a sharp pullback from the local extremes makes us think of the strongest defensive line around 90 on the DXY, which could not be steadily overcome in January or later in May. The significance of this area is hard to overestimate: In 2018, there was an upside reversal of the dollar here and in 2009 and 2010, it was an area of insurmountable resistance. The strength of this week's move sets up an extended pullback, potentially above the March peaks.

The record levels of the Nasdaq100 and the outperformance of technology companies are, in our view, nothing more than a reflex to lower yields in Treasuries. But this trade could turn around quickly, as the pressure on bonds this time is related to the pursuit of safe havens rather than excess liquidity.

The pull towards safety is also indicated by the USDJPY, where the yen is managing to gain even in the face of a soaring dollar. The pair reversed from 110.8 yesterday, pulling back to 110 now.

The last hope for the USD bears is that the Dollar Index will move into the overbought area in the daily chart. Also, the buyers of the American currency at the end of the day will probably be stopped by the traditional Friday profit-taking when the markets briefly form a pullback after strong moves within the week.

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