US Dollar Forecast: DXY Slips as Iran Tensions Fail to Sustain Rally

U.S. Dollar Index Fades at Mid-Session After Early Gains Fizzle Below Moving Averages

The U.S. Dollar Index is edging lower at mid-session Monday after giving back all of its earlier gains. The market started strong, following through to the upside after Friday’s late reversal. The buying fizzled at 98.395, slightly below the 200-day moving average at 98.524 and the 50-day moving average at 98.732.

Retracement zone support at 98.097 to 97.496 stopped the slide on Friday and even produced a late session rebound. Without a solid support base any rally was doomed to fail. This week we’re watching the price action inside that zone to see if shorts are bailing and if buying is increasing.

On the upside, a meaningful rally doesn’t start until buyers overtake the moving averages. Even then they’ll face headwinds at the short-term retracement zone at 99.138 to 99.493. Watch trader reaction to the 50% level at 98.097 late in the session. That will tell us if new buyers are coming in near the close.

Iran Escalation Brought the Dollar Bid Back

The DXY started Monday on stronger footing, briefly touching its highest level in a week before pulling back. The U.S. seized an Iranian cargo ship over the weekend. Iran threatened retaliation and signaled it would not join a second round of talks ahead of Tuesday’s ceasefire deadline. That combination killed the near-term peace deal narrative fast and traders repositioned.

Earlier hopes for a resolution had been pushing the dollar lower. Monday’s developments reversed part of that move. When geopolitical uncertainty spikes, money moves into the dollar. That’s the trade and it showed up early.

Oil Added the Inflation Angle

With the Strait of Hormuz disrupted, Spot Brent crude oil jumped nearly 5% and West Texas Intermediate crude climbed close to 6%. Higher oil feeds inflation concerns and raises the question of how long the Federal Reserve stays on hold. If inflation risks stay elevated the Fed has less room to cut. That keeps the dollar supported even when the geopolitical bid fades.

Dollar Gave It Back as Session Progressed

Despite the early push the dollar gave back gains as trading progressed. The pullback tells you the market isn’t fully convinced tensions will spiral further. Some traders still believe negotiations could resume. That uncertainty is keeping volatility contained and capping the dollar rally for now.

Currency moves were modest. The euro and British pound both edged higher after early losses. The Japanese yen weakened but stayed below levels that might trigger intervention. The tone is cautious. Geopolitical risk is holding the dollar firm but without a clear escalation the gains are getting sold into.

More Information in our Economic Calendar.