Dollar Rallying on Safe-Haven Flows and Fed Expectations
Iran Conflict Driving USD Safe-Haven Rally
The US Dollar is pushing firmly higher today with the DXY now up around 1.5% on the week that’s. The move is being fuelled in part by a strong uptick in safe-haven demand as a result of the conflict between the US/Israel and Iran, and partly through less dovish Fed expectations. USD has emerged as the preferred safe USD has emerged as the preferred safe-haven this week on the back of the weekend strikes on Iran and subsequent fallout. With Iran now engaged in retaliatory attacks and Trump warning that the US could put troops on the ground, risks of a drawn-out conflict are growing. Against this backdrop, USD looks likely to remain supported near-term with risks of a much higher run if the conflict does indeed escalate.
Dovish Fed Expectations Fade
The move higher in USD has largely been a function of the Dollar deriving safe-haven support amidst this fresh conflict in the Middle East. However, USD is also rallying on a shift in Fed expectations. Surging energy prices, linked to supply disruption from the conflict, have seen traders scaling back their Fed easing expectations near-term. The view is that upside inflationary pressures from elevated strength in energy prices will keep the Fed side-lined in coming months. Pricing for a cut this month has now fallen to less than 3% from around 40% at the start of the year. Currently, easing is now expected until July and even then market pricing is only marginally in favour of a cut. Should the conflict push on longer we can expect easing expectations to fall back further, keeping USD supported.
Technical Views
DXY
The rally in DXY has seen the index breaking out above the bear channel highs and the 98.24 level. Price is now testing the 99.15 level resistance and with momentum studies bullish, focus is on a continuation higher with 100.36 the next resistance to note.
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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.