US Dollar Price Forecast: DXY Gains as Iran Tensions Flare – GBP/USD and EUR/USD Safe?

Market Overview

During yesterday’s European trading session, the US Dollar Index (DXY) kept inching upwards for the third time in a row, closing out the day around 99.20. But while that was good news for greenback holders, the reasons behind the dollar’s rise are a bit more concerning.

It’s pretty clear that what’s driving the dollar’s growth now is the escalating tensions in the Middle East.

US Dollar Gets a Boost from Fed Rate Speculation and Treasury Yields

As you might know, traders have pretty much written off the idea of the Federal Reserve cutting interest rates anytime soon. Just a few short days ago, people were still fairly convinced that a rate cut was on the cards. Now

Most seem to think we won’t even see one until at the very least Summer. Meanwhile, US 10-year Treasury yields have been quietly creeping up to around 4.06% over the past few sessions, partly due to fears of rising inflation.

The Fed is no longer looking to cut rates anytime soon, which is helping to give the US dollar a bit of a boost as people look for safe places to stash their cash.

Middle East Tensions Keep Safe-Haven Demand High

Another factor pushing the US dollar higher is that folks in the Middle East are getting a bit spooked by what’s happening in the region. I mean, the conflict there doesn’t seem to be getting any better – if anything, it’s going the other way. And that’s naturally sending a bit of a chill down investors’ spines, so they’re looking for somewhere to put their money that they feel a bit safer with. The US dollar is looking pretty appealing at the moment.

The fact that US President Donald Trump is essentially warning that the conflict could make dealing with Iran’s government even harder than it already is isn’t helping to calm things down. Nor is the news that Israel has launched another attack in southern Lebanon. On the ground, fighting doesn’t seem to be letting up either.

So as you’d probably expect, the whole region feels pretty unstable at the moment. That means people are being careful with their cash, which in turn is keeping demand for the US dollar pretty strong.

U.S. Dollar Index (DXY) Forecast: Bullish Channel Targets 100.00

The U.S. Dollar Index is currently sitting at 99.12, and is quietly consolidating inside a clear, well-defined rising channel on the 2-hour chart. Just recently it bounced off the 0.382 Fibonacci level at 98.87 and continues to hold above the 0.5 retracement at 98.62, giving further strength to the short-term bullish picture.

The immediate resistance to watch comes in at 99.68, followed by that all important psychological level of 100.00. If price can break above 99.68, that could easily pick up pace and push towards the upper end of the channel.

At the other end, if we can’t hold above 98.87, then 98.37 is going to be our next port of call, so that would give the bullish argument a bit of a knock.

GBP/USD Price Forecast: Bearish Channel Caps Recovery Below $1.3400

GBP/USD is currently trading near $1.3346 on the 2-hour chart, and still finding itself pretty much stuck inside a clear, well-defined falling channel. Just recently it bounced off the $1.3254 support area, but the fact it’s making lower highs is keeping the overall short-term structure looking pretty bearish.

Price is still below both the 50-day and 200-day EMAs, which are angled downwards and just adding to that downside momentum. The latest recovery attempt just fizzled out near $1.3376, a minor resistance level that just so happens to coincide with previous breakdown support.

So as long as GBP/USD stays below $1.3400, we’ve still got a risk of a move down – probably all the way down to $1.3250 and potentially even lower down to $1.3214.

EUR/USD Price Forecast: Bearish Channel Keeps Pressure Below $1.1640

EUR/USD is currently trading near $1.1600 on the 1-hour chart, and is still stuck inside a clear, well-defined falling channel. Just recently it broke below the 0.382 Fibonacci level at $1.1644 and then promptly failed to make any comeback above the 0.236 retracement at $1.1600 – all of which tells us downside pressure is pretty persistent.

Both the 50-day and 200-day EMAs are angled downwards, with price still trading beneath them – which just underlines that short-term bearish momentum remains very much in play. The immediate resistance to watch comes in at $1.1640-$1.1679.

As long as price stays below that, the bias has got to be that a move lower – probably all the way down to $1.1530 and potentially further down within the channel structure.