Is dollar heading firmly lower?

Dollar declined on Tuesday to one-month lows against major rivals amid a selloff away from 20-year highs.

Is the dollar heading for truly bearish territory? we try to answer this in this report.

The Index

The dollar index fell 0.35% on Tuesday to 101.74, the lowest since April 26, after hitting 105 on May 13, a 20-year peak before tumbling on profit-taking.

Bearish Market

In order to firmly enter bearish territory, the dollar has to fall below 100, which is yet to happen.

So far it's a mild correction to collect profits on the large buy positions in the last few weeks.

Chinese Economy

China is starting to loosen up restrictions on movements in major cities as Covid 19 infections decline, while China's central bank took a bold move and cut interest rates to bolster economic activities.

Shanghai, a 25 million people city, is preparing to return to normal life by June 1.

Otherwise, the People's Bank of China cut five-year interest rates for loans by 15 basis points to 4.45%, the largest such decrease since 2019.

Bonds

US 10-year treasury yields tumbled to three-week lows at 2.774%, hurting dollar's standing, after negative reports by major US retailers. 

Analysts are now genuinely concerned about a potential US economic recession as the Fed forges ahead in hiking interest rates in very rapid paces. 

US output already slowed down by 1.4% in the first quarter, with deeper declines feared in the future.