DXY Near 1-Week High Amid Middle East Unrest, Rate Hike Odds

US Dollar Index Wavers Amid Middle East Tensions and Rate Outlook

The US Dollar Index (DXY) was caught in a delicate balance this Monday as geopolitical unrest in the Middle East heightened and investors awaited a pivotal speech from Federal Reserve Chair Jerome Powell. The dollar remained near a one-week high against a basket of currencies, reflecting a cautiously risk-averse market sentiment.

Geopolitical Pressures

The ongoing conflict between Israel and Hamas has been contributing to market volatility, directing flows toward traditional safe-haven assets like the dollar. Israeli forces continued their military activities in Gaza, further straining diplomatic efforts for a ceasefire. These geopolitical tensions provided a boost to the dollar index, which eased only slightly to 106.47.

Currency Dynamics

The Euro and Yen also responded to the tumultuous backdrop. The Euro stayed close to a one-week low, last trading 0.27% higher at $1.0536. On the other hand, the yen could become a casualty in the event of a further escalation in the Middle East conflict. Analysts warn that carry trades funded by the yen might unravel, particularly as the currency is near potential intervention levels around 150.

Rate Outlook

Investors are keenly awaiting Powell’s speech for insights into the Fed’s interest rate trajectory. Markets largely anticipate the Fed to maintain the current rates through November, but there’s a 32% chance of a rate hike in December, according to the CME FedWatch tool. This comes after last week’s data showed consumer prices rising more than expected in September.

Short-Term Forecast: Neutral

With geopolitical tensions and monetary policy serving as strong influencers, the short-term outlook for the DXY leans neutral. Investors will be closely watching Powell’s speech and developments in the Middle East to gauge the dollar’s next move.

Technical Analysis

The current Daily price of the US Dollar Index (DXY) at 106.385 is positioned above its 200-day moving average of 103.223 and its 50-day moving average of 104.817. This suggests that the asset is experiencing bullish momentum in both the short and long terms.

The asset also stands above its main support level at 103.572 but slightly below its minor resistance level of 106.904.

With trend line support set at 106.647, the market appears poised for a potential breakout to the upside. Overall, based on these indicators, the current market sentiment for DXY could be considered bullish.

If there is no follow-through to the upside then look for the selling to extend into the 50-day moving average at 104.817.