Dollar Higher on Monday

The US Dollar is pushing firmly north at the start of the week with the DXY gapping higher, no wup around 0.6% from Friday’s close. The move comes amidst escalating rhetoric between the US and Iran over the weekend. Trump has issued an ultimatum that the Strait of Hormuz be reopened by tonight or Iran will be ‘decimated’. In turn, Iran has threatened severe retaliation against any fresh attacks. As such, there is plenty of uncertainty and fear in the markets today with USD benefiting from safe-haven demand. Additionally, upside risks to oil prices are keeping the focus on the inflationary threat facing the US and the impact that has on the Fed.

Fed Outlook

The central bank retained some dovishness in its outlook last week, keeping one projected rate cut this year in its updated dot plot forecasts. However, Powell warned of the heavy uncertainty in the outlook and traders can see the more aggressively hawkish shift among other G7 central banks. As such, the general view is that as the war continues the Fed is likely to turn more hawkish, with USD set to push higher in this context. Only the news of a ceasefire or path to negotiation (short term: compromise over the Strait of Hormuz) is likely to alter the current narrative and send USD lower.

Technical Views

DXY

The correction lower in the DXY has found support for now into a test of the 99.15 level with price since turning higher again. 100.36 remains the key resistance to note with 101.91 the next bull target if we do break higher here.