The dollar index has risen to its highest level since the end of March, the rally yesterday was accompanied by a pickup in US equity market and bond rout (a signal that the Fed may be again behind the curve). Major US stock indices closed in positive territory, US futures extend the rise today, with the S&P 500 consolidating near 4200 points before a potential breakout. Interestingly, gold has left the $2000+ zone, trading near $1970 per ounce on Thursday. This is likely due to the increase in risk-free rates in the US, which represent opportunity costs for the yellow metal. When the real interest rate rises, the missed opportunity cost of investing in gold also increases, as gold is known to offer zero yield. The yield on the 2-year Treasury bond has surged to 4.16%, and the yield on the 10-year bond has reached 3.59%:

As seen in the chart above, yields are currently at their highest level since mid-April and are essentially reaching the resistance levels from early March (4.2% for the 2-year bond and 3.6% for the 10-year bond). Interestingly, within just one week, the bond market has apparently priced in another 25-basis-point rate hike by the Federal Reserve in June. Overall, it becomes clear where the dollar is gaining strength: higher expected interest rates in the US (relative to other countries) are stimulating capital inflows into US bonds.

The EURUSD pair, after bouncing back to the 1.09 level as expected, has retested the general ascending trendline. The price is likely to attempt to test the 1.08 level and seek support in the 1.07-1.08 area:

A similar situation is observed in the GBPUSD pair: the price has bounced off the key resistance line and may return to the upper bound of the short-term ascending channel, which will now act as support (1.235):

Tomorrow, Powell's speech is due, and judging by the bond market's near-term performance, the comments from the central bank's head will likely indicate a hawkish stance. However, the bar for surprising the market should be set high, as expectations for June decision have already been significantly revised.