Since last Thursday, the USD has been rallying, and the EURUSD pair dropped from 1.2350 to 1.2150 on Monday. It looks like a stronger correction could be on the way.

Newly elected US president Joe Biden has promised trillions in new stimulus, starting with boosting the checks from 600 USD to 2,000 USD. As inflation expectations rose sharply, so did Treasury yields.

The 10-year yield rocketed 20% and settled at around 1.1%, which are levels last seen in March. 

As long as yields keep rising, the USD might strengthen further. However, many economists see yields topping near 1.2% as the US can't afford higher yields due to extreme debt burden and massive debt refinancing this year.

Federal Reserve Vice Chair Richard Clarida said on Friday that the U.S. economy was headed for an "impressive" year as the impact of coronavirus vaccines takes hold and with the potential for larger government spending. His remarks also bolstered the US dollar slightly. 

The dollar index broke out from the two-month falling wedge pattern, which is a bullish reversal formation. As long as it stays above 90, the short-term outlook seems bullish.

The next target for bulls could be near 92, where previous lows are located. Should the index jump above this level, too, the medium-term outlook might change to bullish. We might see a few weeks of consolidation/ upside momentum in the long-term downtrend. 

Alternatively, if bears return, the support is at 90 and if not held, the USD might drop toward the current cycle lows at around 89.20.