US Dollar Forecast: DXY Eyes Breakout at 97.522 as Safe-Haven Flows Return

Dollar Climbs Toward Key Breakout Level on Iran Tensions, Euro Weakness

The U.S. Dollar Index is climbing on Wednesday, essentially retracing yesterday’s whipsaw price action as it approaches a key pivot and potential breakout level at 97.522. Several factors contributed to the greenback’s earlier strength including a rise in the 10-year yield, a weaker Euro and position-squaring ahead of the release of the latest Fed minutes later this afternoon. However, I also think we are seeing some safe-haven buying after CNBC reported that Vice President JD Vance said Iran failed to address U.S. red lines in nuclear talks this week. He also said that President Trump reserves the right to use military force.

Treasury Yields Firm, But Fed Minutes Won’t Tell Us Anything New

The benchmark U.S. 10-year Treasury yield is firm on Wednesday with traders attempting to claw back some of last week’s steep losses. However, gains are likely being limited by uncertainty ahead of the Federal Reserve meeting minutes. With the Fed sitting on the fence at the last meeting, and last week’s labor market and consumer inflation data sending off mixed signals, I don’t see much coming out of the minutes because we have already moved on with new data points. Furthermore, the CME’s FedWatch indicator shows a 92% chance the Fed will hold rates unchanged at its March meeting, while the odds of a June cut sit at just 50%.

So while firm yields today may be underpinning the dollar, I don’t see them as the reason for the early strength.

Euro Dip on Lagarde Exit News Gave Dollar Early Boost

A dip in the Euro on Wednesday after a report said that European Central Bank President Christine Lagarde planned to leave her position early, may have been responsible for early session strength. The Euro represents about 57% of the Dollar Index, so when it drops the USD tends to benefit.

Safe-Haven Buying on Iran News Pushed Dollar to Resistance

Since the Dollar Index climbed after its initial gains and as the news from VP Vance was breaking, I’m going to have to give the credit for the pop into resistance at 97.522 to this story. Call it safe-haven buying if you will, but it suggests that any further escalation of the tensions between the United States and Iran could drive the Dollar Index into a key retracement zone at 97.522 to 97.987 and even threaten to take out a swing top at 97.973. This would put the index in a position to challenge the 50-day moving average at 98.004 and the 200-day MA at 98.456. On the downside, solid support is the retracement zone at 96.762 to 96.476.

The Key Question: Can Today’s News Trigger an Upside Breakout?

Looking ahead, is there enough bullish news today to trigger an upside breakout toward the swing top and the moving averages? If you said yes, then you are essentially calling for a possible change in trend. It will all make sense later today if the Fed minutes deliver a hawkish tone by suggesting the first interest rate cut in 2026 could take place after June. That’s possible since traders only think it’s a 50/50 proposition at this time.

More Information in our Economic Calendar.