DXY Pulls Back On Yen Drive, ECB Next

Yen Rally Knocks USDThe Dollar rally looks to be taking a breather midweek with the DXY pulling back from the latest test of 103.48 resistance. An uptick in Japanese yields on the back of the latest BOJ meeting this week has helped divert attention away from the Dollar. The BOJ’s comments around inflation and their confidence in meeting their inflation target has prompted a rise in JGB yields with traders now sensing that a shift in BOJ policy is coming this year.GBP & EUR Pushing HigherAlong with the uptick in JPY we’re also seeing GBP and EUR rising this week. Better data out of the UK has seen traders scaling back their near-term BOE rate-cut bets, putting pressure on the pound. For the Euro, we’ve heard from several ECB members recently pushing back against calls for near-term rate cuts including president Lagarde who warned that the bank has ample time to move out of restrictive rates and would keep rates high for as long as possible.US PMIs & ECB in FocusLooking ahead this week, US PMIs later today have the potential to see a pickup in USD if the data comes in above forecasts. However, the bigger focus will likely be on the ECB meeting tomorrow. If we see further pushback from the bank and a more hawkish tone, this could well drive a firmer repricing of the market’s ECB rate path projections, leading EUR higher near-term and putting further pressure on USD.Technical ViewsDXYThe rally in the Dollar Index has seen the market breaking out above the bear channel from last year’s highs. Price is now testing the 103.48 resistance which is holding currently. If we correct lower from here, 101.22 is the key support to note. While above the channel, focus remains on further upside with 104.94 the next upper level to note.