The dollar came under pressure early yesterday, with EUR/USD briefly treading water above the 1.1600 mark in European morning trade. As US-Iran tensions continue to play out, the bond market is reacting accordingly, with yields rising to a fresh cycle high. US 10-year yields are now bordering 4.74%, while 30-year yields have hit 5.32% — the latter the highest level since 2007, taking long-term US borrowing costs back to territory last seen before the global financial crisis. For currency markets the link is direct: higher US yields lift the return on dollar-denominated assets, a dynamic that has historically tended to underpin the dollar.

That leaves markets with plenty to think about, with watchful eyes on the Federal Reserve ahead of Jackson Hole next week — the Fed's annual economic policy symposium in Wyoming, a venue policymakers have used in the past to signal shifts in policy thinking. Market-implied odds of a September rate hike were trimmed to around 29% early Monday but now sit at around 35%.

The latest developments are keeping dollar losses in check, and in the case of EUR/USD, so are key technical levels.

[EUR/USD daily chart]

Buyers had a decent shot at an upside break yesterday but fell short, despite a push above the 100-day moving average (red line). That key level had held back upside momentum in earlier weeks, and buyers are now also facing added resistance from the 50.0 Fibonacci retracement level of the swing lower from April to June — the halfway point of that move — which sits at around 1.1586.

As such, buyers need to secure a firm break above both key technical levels to genuinely convince of a stronger push above the 1.1600 mark. Amid the backdrop of surging Treasury yields, that will be a tough ask — unless a trigger comes from another major currency: the Japanese yen.

USD/JPY is now starting to track back toward the 160 mark and could see another intervention play as it approaches the figure level — an area where Japanese authorities have stepped in before, and one they have repeatedly said they stand ready to defend against excessive one-sided moves. Coordinated currency intervention among major economies has precedent, such as the G7's joint action on the yen in 2011, and a joint intervention push could once again send a stronger message. But if the US Treasury resorts to EUR/JPY as the alternative to indirectly influence the market — a route US authorities have rarely taken in recent decades — that would also keep any euro advance more limited against the dollar.

For now, it is a case of close but no cigar for EUR/USD buyers. Key levels are being tested, but not to the breaking point needed to secure a further upside move just yet.