US Dollar Forecast: DXY Rebound Signals Caution Despite Ceasefire Relief

Dollar Finds Its Footing After Ceasefire Rattles Safe-Haven Demand

The dollar got hit early and then bounced on Wednesday. The ceasefire knocked out safe-haven demand fast but by the end of the session the dollar found its footing and trimmed the losses.

Yields Drop, Dollar Wobbles

The 10-year yield dropped hard after the ceasefire, falling toward 4.23% before steadying near 4.29%. That’s the mechanism. Lower yields mean lower returns on U.S. assets and when that happens, demand for dollars drops with it. Oil plunging took inflation fears off the table at the same time and that gave the Fed less reason to keep rates elevated.

The dollar didn’t keep falling though. Traders started asking whether rate cut expectations were getting ahead of themselves. A ceasefire that lasts two weeks isn’t a peace deal and the market knows that. Some dollar demand came back on that uncertainty alone.

Risk Appetite Returns but Doubt Keeps the Dollar Bid

Stocks were flying and oil was crashing. That’s a risk-on environment and risk-on is normally bad for the dollar. Money flows out of safe havens and into assets with more upside. That’s what happened early in the session.

The doubt crept back in though. Nobody knows if the ceasefire holds and that kept traders from fully committing to the short dollar trade. The result is a dollar that’s stuck. Lower yields and rate cut expectations are pushing it down. Geopolitical uncertainty is keeping it from falling apart completely. Until one of those forces wins, expect choppy price action.

Technical Outlook

The DXY fell sharply into a support cluster formed by the 50-day moving average at 98.629 and the 200-day moving average at 98.492. The technical bounce from the intraday low at 98.525 was impressive, but not strong enough to form a potentially bullish closing price reversal bottom.

If the support cluster had failed, the losses would have likely extended into the major 50% to 61.8% retracement zone at 98.097 to 97.496. If this zone is tested today or over the near-term, we’re likely to see new buyers emerge just like we did on Wednesday when the support cluster was tested.

Although the technical bounce was strong, it’s not going to matter if there is no follow-through to the upside. If buyers can sustain a rally over Wednesday’s high at 99.179 then this could create the upside momentum needed to challenge a 50% to 61.8% retracement zone at 99.584 to 99.834. If sellers return on a test of this area, another lower top could form, signaling that sellers are taking control of the market.

More Information in our Economic Calendar.