There is potential for a strong dollar rally this week - Barclays

Barclays is arguing that the stars are aligning for the dollar to capitalise on recent market conditions, with scope for a sizable rally this week. The greenback has already benefited from the latest downdraft in risk sentiment since last week, as US-Iran talks continue to stall with the Trump-Xi summit in Beijing being a rather non-event.

And the firm notes a couple of reasons as to why the dollar could benefit even more in the days ahead:

"First, one of the proximate reasons for the dollar's recent underperformance is losing momentum. This is none other than the performance of semiconductor stocks, which are also one of the key indicators for broader equity momentum and appear to be a lot more range-bound over the past few days. To a non-trivial degree, the strong performance of risky assets has kept the dollar at bay despite data strength and high oil prices.

Second, the situation in the Middle East is not mending itself as one (including ourselves) would have assumed a month or so ago. Since the breakdown of the Pakistan talks, both sides have persisted on maximalist demands, with the most recent Iranian set of proposals quite far from something that even a more pragmatic US approach could accommodate. Oil prices have not increased due to the large initial stock of inventories and heavy draw-downs. Clearly, though, signs that the Hormuz strait will stay clogged for longer can only exert upward pressure on oil."

On the first reasoning, the punish seems to be coming from the bond market. While higher yields are not exactly pressing for tech stocks, they are a bane for broader market sentiment and there's only so much pain that investors can tolerate before breaking. Hence, why the moves in global bond yields have been an important focus point since last week.