US Dollar Forecast: DXY Rebounds on Hormuz Risk – Are GBP/USD and EUR/USD Ready to Slide?

Market Overview

US Dollar Index (DXY) saw a small bounce around the 98.40 – 98.60 mark, with some support coming from lingering uncertainty over the US Iran ceasefire. Trumps just announced extension of the ceasefire brought some relief, but those second talks are at a standstill (Iran refused to show) and the strait of Hormuz is still getting pretty hairy which kept traders reaching for the safety of the dollar. The fact that higher energy prices are a risk for inflation makes markets think the Fed wont be lowering interest rates anytime soon, which in turn gives the dollar some extra support even when the market does go a bit risk-on.

The Euro remains under a lot of pressure and is stuck around 1.1700-1.1750. The latest Eurozone sentiment data came in pretty weak (that April ZEW survey went downhill fast) which doesn’t help anyones mood when it comes to growth and then there are the energy shock worries. Meanwhile the ECB is keeping their powder dry and just waiting to see what happens next, so you wont be seeing any major moves anytime soon. The Euro does get a bit of a lift when things de-escalate, but when the tensions over Hormuz start to flare again, it just can’t get any traction against the dollar.

The British Pound is hanging in there around 1.3500 – 1.3520 thanks to the fact that UK inflation has been steady (that March CPI was 3.3% YoY) and the labor market is looking pretty healthy which keeps the BoE from tightening thats not happening yet. However its still got the same problem as everyone else, sensitive to any bigger move in the dollar and Middle East headlines, and just can’t seem to get any real momentum going.

To be honest, most of the forex action is being driven by the situation with Hormuz and US Iran talks rather than any actual data from the countries themselves.

DXY Rebounds to $98.65: Testing Key Trendline Resistance

The US Dollar Index is now hovering around $98.65 after a nice recovery from the $97.60 base – but it’s not out of the woods yet . Now its got a serious test on its hands – a descending trendline of resistance that looms between $98.70 and $98.80. Price has taken back the 50 EMA which is slowly starting to rise again – thats a good sign – and the 200 EMA is still a fair way off at $99.00, limiting the upside.

What you do see though is a bunch of stronger looking green for the bulls on recent candles – but those wicks at the top of them indicate the bulls are getting a bit fuzzy about pushing through to new highs. The RSI is climbing towards 60, which is telling us the dollar’s momentum is picking up. Breakthrough above $98.80 and we might see $99.20 and $99.50 within reach – however – if it hits a wall there the price is likely to fall back to $98.20 and $97.80.

GBP/USD Holds $1.3500: Trendline Support Keeps Bulls Alive

GBP/USD is hovering at $1.3504, right on top of a trendline that has been supporting its recent run higher and still at that nice spot above that 50 EMA. The 200 EMA is lower still around $1.3380, which is good for the bulls – however the recent candles are a bit underwhelming, the greenwashes are looking less aggressive now and the sellers are looking to open up a bit of indecision around the $1.3580 highs.

The RSI is stuck in neutral , hovering between 45 and 50, which is saying we might just be in a bit of a holding pattern. If we hold $1.3480 though then we can still be happy with our chances to break up towards $1.3580 and $1.3650 – but if we lose that support line then it’s a different story and all of a sudden we’re looking at $1.3450 and $1.3380.

EUR/USD Slips Toward $1.1700: Channel Support Under Pressure

EUR/USD is now trading at $1.1701 and having drifted lower within an ascending channel that just failed to hold the support at $1.1800. Price is now testing the lower boundary of the channel and hanging around the 50 EMA while the 200 EMA is still way down.

The candle patterns are still showing us lower highs – which is showing us the short term sellers arent done yet. The RSI has dropped to 40 which tells us momentum is waning fast. And if that 1.1700 does get broken below the price could kick on down to $1.1650 and $1.1600 – on the other hand a bounce from that level might just be enough to get the bulls going again and target $1.1780 and $1.1850 for the pair.