Bullish USD Risks Into FOMC on Wednesday
DXY Back Around $100
The US Dollar is starting the week on a slightly softer footing with the DXY cooling a little from the fresh YTD highs printed on Friday. However, with the war in Iran showing no signs of stopping, oil price pushing higher and the Fed widely expected to strike a more hawkish tone this week, the current weakness should prove temporary with the greenback poised to push on higher again this week.
Safe-Haven Flows
Calls from Trump for a naval coalition of allies to help keep the Strait of Hormuz open has been seen by many as a worrying sign that the US is expecting the conflict to drag on. Both sides claim to not want a ceasefire and to instead push on with the war. While this narrative remains, USD should continue to see safe-haven inflows, keeping the Dollar bid for now.
Oil Prices At Highs
Continued strength in oil prices is also feeding into a firmer USD here. With around 20 million b/p/d currently shut in as a result of the war, crude prices remain around the $100 mark and look vulnerable to fresh upside in response to any escalation in the conflict. Trump’s efforts to secure the Strait of Hormuz are so far not working and the longer that key distribution channel remains compromised, the greater the risk of afresh push higher in crude.
Hawkish Fed Expectations
The push higher in oil is creating a stronger floor under the Dollar through inflationary concerns. Traders fear that soaring energy prices will create broader upwards price pressures in the economy, thwarting any chances of Fed easing in the near-term. Indeed, looking ahead this week, traders will be waiting to hear how the Fed addresses the crisis given the big shift in the rates outlook we’ve seen in recent weeks. Pricing for a cut has evaporated Pricing for a cut has evaporated with the risk now that traders start to prince in a Fed hike ahead of year end. As such, any hawkish language from the Fed this week should see USD ramping higher.
Technical Views
Dollar
The rally has seen the index breaking out above the bear channel highs and 99.15 level with price now testing the mid 2025 highs around 100.36. This is a big pivot for the market and a break here will turn the picture firmly bullish, putting focus on 101.91 as the next objective for bulls.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.