The dollar index (DXY), which measures the dollar against a group of currencies, gained some ground on Tuesday, recovering from losses experienced the previous day and reaching a low seen over the past week. Throughout early trading in Europe, the index showed a modest upward trend, currently sitting just above the 99.00 mark, reflecting an increase of more than 0.10% for the day.
Initial optimism regarding a possible peace agreement between the U.S. and Iran faded quickly. Reports emerged that U.S. military forces executed defensive strikes on Monday, targeting Iranian vessels trying to establish missile launch sites and deploy mines in southern Iran. The ongoing disputes surrounding Iran’s nuclear ambitions and the situation in the Strait of Hormuz have dampened expectations for an end to the ongoing conflict, which has lasted nearly three months. This scenario seems to bolster the positions of safe-haven currencies.
In addition, current geopolitical dynamics are maintaining risks, allowing oil prices to make a slight recovery after hitting lows not seen for more than two weeks. This resurgence is igniting fresh concerns about inflation, aligning with the more aggressive stance of the U.S. Federal Reserve, which is contributing to stock market support. Still, it’s worth noting that dollar bulls appear to be cautious, opting to wait for more clarity regarding the situation in the Middle East.
From a technical standpoint, the DXY found some support and bounced back around the 200-period exponential moving average (EMA) on Monday. This pattern indicates potential downside in the high 98.00s. However, the subsequent rise didn’t gain enough traction beyond the 23.6% Fibonacci retracement level from the recent increase that followed the monthly lows, leading to a somewhat neutral short-term outlook, which may give bulls cause for some hesitation.
Additionally, the Moving Average Convergence Divergence (MACD) remains slightly negative, while the Relative Strength Index (RSI) hovers around 47. This signals a lack of confidence in the directional movements following a recent pullback. Initial resistance appears near cycle highs at about 99.54, posing a barrier to further gains.
On the flip side, immediate support is identified at the 23.6% retracement level around 99.08, with further backing from the 200-period EMA at 98.88. A substantial drop below this could lead to a continuous Fibonacci retracement. Additional support points are at 98.80, 98.58, and 98.35, with deeper support levels at 98.03 and 97.62 if selling pressure intensifies.
