The US dollar (USD) gained some ground on Monday as market confidence waned amid rising tensions in the Middle East and increased oil prices. Nonetheless, the US dollar index (DXY) has been hovering near the lower end of its range for the last two weeks, struggling to break above the 99.00 mark as it approaches several significant economic announcements from the US.
New clashes between the US and Iran have heightened fears regarding the delicate ceasefire, though US President Donald Trump is contemplating a memorandum that could extend this ceasefire for another 60 days. On top of that, Israel has intensified military actions in Lebanon, further straining an already volatile ceasefire situation.
Looking at the economic landscape, the US has a packed agenda starting with the ISM Manufacturing Purchasing Managers Index (PMI) report due out later today. This data will set the stage for upcoming employment reports expected later this week, with Friday’s nonfarm jobs report anticipated to shed more light on the Federal Reserve’s monetary policy outlook.
Technical analysis: DXY is forming an expanding wedge
The dollar index stands at 98.97, displaying a moderate bearish trend, while recent price actions suggest a developing widening wedge. This indicates that market sentiment is particularly reactive, often acting like a top formation.
The momentum indicators on the 4-hour chart show some weakness. The Relative Strength Index (RSI) hasn’t risen above the neutral midline of 50 and is currently around 45. The Moving Average Convergence Divergence (MACD) is also slightly negative, implying any attempts for upward movement may face difficulties.
Any efforts to rally will likely be limited to under the trading high of $99.08. Currently, the prospects for reaching the May 29 high close to 99.20 and May 28 high just above 99.50 are dwindling. On the downside, a breakdown below the wedge, which is currently at 98.80, could lead to levels corresponding to the May 5 and 13 highs, just below 98.60, with additional support near the May 8 and 11 lows around 97.85.
