US Dollar Forecast: Weakens as Middle East Ceasefire Spurs USD Selloff – GBP/USD and EUR/USD

Market Overview

The U.S. Dollar Index (DXY) extended losses on Wednesday, falling below the 98.00 threshold to touch an intraday low of 97.65. The retreat followed a shift in sentiment triggered by the announcement of a ceasefire in the Middle East, which steered investors away from safe-haven assets like the U.S. Dollar.

Ceasefire Eases Market Tensions, Weakens Dollar

The ceasefire deal, though fragile, marked a turning point in market behavior. Despite limited retaliatory actions following the announcement, the perception of de-escalation encouraged investors to rotate into riskier assets. As confidence returned, demand for the Dollar—traditionally a hedge in volatile periods—diminished, prompting a wave of position unwinding across USD pairs.

Fed’s Caution Overshadowed by Geopolitical Relief

Federal Reserve Chair Jerome Powell reiterated that rate cuts are not imminent, emphasizing the data-dependent nature of the decision. However, Powell’s comments failed to support the Dollar, as geopolitical developments took precedence. Traders largely ignored the Fed’s hawkish tone in favor of broader risk sentiment.

US Dollar Index (DXY) – Technical Analysis

The U.S. Dollar Index (DXY) is consolidating near 97.99 after an aggressive selloff from 99.41 triggered by risk-on flows and dovish Fed expectations. Price action now hovers just above the 97.79–97.79 support region, aligned with the 0% Fibonacci retracement of the recent up-leg. While bearish momentum has eased, upside remains capped by the 23.6% Fib level at 98.17 and the 50-EMA near 98.50.

If bulls can reclaim 98.17, the 98.60–98.80 zone becomes the next challenge. However, repeated long-wick candles suggest indecision. A sustained close below 97.79 could expose deeper support at 97.16 and 96.80. Directional clarity hinges on a decisive break from this tight range.

GBP/USD Technical Analysis

The British pound is consolidating below 1.3648 after a sharp surge from 1.3367, now trading at 1.3624 on the 2-hour chart. Price is encountering resistance at the 0% Fibonacci level, with small-bodied candles forming in the supply zone—suggesting momentum exhaustion. The ascending wedge formation hints at a potential bearish divergence, especially as the 0.236 Fib at 1.3582 emerges as a short-term support.

If price breaks below 1.3582, a deeper retracement toward 1.3541 (0.382 Fib) could unfold. A breakout above 1.3648 would invalidate the setup and expose the 1.3676–1.3703 range. Watch for confirmation candles to guide entry decisions.

EUR/USD Technical Forecast

EUR/USD is consolidating below the 1.1642 resistance after an impulsive rally from the 1.1452 low, pausing near the 0% Fibonacci extension of the latest leg. Price is now testing 1.1606, hovering just above the 23.6% Fib retracement at 1.1596. The 50-EMA on the 2-hour chart at 1.1558 continues to trend higher, supporting the bullish structure.

If bulls defend 1.1590, a move back toward 1.1642 and possibly 1.1670 remains in play. A break below the EMA and 38.2% Fib at 1.1569 could shift momentum, opening room toward 1.1540. Traders should watch for a confirmed close below 1.1590 to gauge near-term trend strength.