Dollar Rally Continues Amid USD/JPY Carry Trade Uncertainty

The US Dollar has rallied significantly since last Wednesday's rate hike, pushing above the 100.00 level and testing resistance at 100.64 in the DXY basket.

While USD-strength is evident, the real driver of USD pairs remains USD/JPY, where a crowded carry trade still prevails.

However, for a larger reversal in the USD/JPY theme, there needs to be a significant shift in fundamental dynamics. In such a scenario, a de-leveraging event could have broader implications across macro markets, as seen in July 2024.

In other pairs, EUR/USD and GBP/USD are nearing oversold territory on the daily RSI, while USD/CAD has broken above the 1.4000 level, with potential for higher-low support at 1.3967.