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

Market Overview

The dollar gets a lifeline as US-Iran tensions simmer on and disruptions in the Strait of Hormuz keep it in the safe-haven zone, all at a time when oil prices are on the rise and inflation is a threat. But we’ve got mixed signals coming from Tehran – thanks to mediators who are trying to broker a deal – and people are holding out hopes for some diplomatic progress. The upshot is that gains are being capped of. On the other hand, the US economy seems pretty resilient and the Fed is likely to stick to its higher rates for longer – which is a pretty solid underpinning – even though global risk appetite is a bit shaky and there’s a fair bit of divergence between central banks out there which is putting a bit of a lid on things.

EUR: Meanwhile, the euro is running into all sorts of headwinds – a weaker growth outlook in the Eurozone being one, sticky inflation that’s driven by energy prices another, and the ECB being pretty cautious about tightening up policy. Of course geopolitical uncertainty is also weighing on people’s appetite for risk but at the same time people are feeling a bit more hopeful about what might happen thanks to Fed signals and hopes for some kind of de-escalation.

GBP: The pound, on the other hand, is holding up pretty well because of some decent data out of the UK and the BoE’s bias towards keeping rates high. As a result its outperforming the euro at the moment but still very much at the mercy of how the broader dollar market is behaving and what happens in the Middle East.

Summary: Right now geopolitics – especially around Iran and the Strait of Hormuz and talks to sort things out – and the upcoming central bank decisions – FOMC, BoE and ECB – are the things everyone is most focused on. The fact that the dollar is still looking like the safe haven spot and that there’s this divergence in policy between the Fed and other central banks means there’s going to be a fair bit of volatility.

US Dollar Index (DXY) Forecast: Rejection Signals Sign that Upside is Stalling

The Dollar is currently bumping along at 98.33 after a pretty sharp slapdown from the 98.80- 99.00 resistance area. This area is where the downward trendline used to be, and now its the level that’s been keeping the Dollar from making any real progress. This indicates that even with all the bearish signals we’re seeing, the Dollar is still in a bearish gear.

If the Dollar can’t get back up to 98.80, the first place it’s going to be heading is 97.97 and then 97.60. And if it does break down through 98.20 then you can pretty much expect a fast bearish move. But only a sustained move above 99.00 would start to make me think that the Dollar is actually coming back to life and I would start looking at 100.10 as a possible target.

Trade idea: If you think the Dollar is going to break down then you should be looking to sell below 98.20, targeting 97.60, and you should have a stop loss in place just above 99.00.

GBP/USD Analysis: Trendline Support Keeps The Bulls in Line

The GBP/USD is currently trading round the 1.3540 mark and is still keeping its support above that rising trendline. Not only that but we’re still above the 50 EMA as well. We can see the pair is forming those all important higher lows which is a big hint that the pair is still in a solidly bullish state even with all the recent consolidation.

If we can make it past the first hurdle at 1.3587 then we can start to see things start to fire on all cylinders and we can expect to see the price make a beeline for 1.3650. However, if the price does break below the trendline and 1.3485 then I think we’re going to start to see a shift in sentiment and we could start seeing things looking a lot more bearish down to 1.3435 and potentially even 1.3380.

Trade idea: If you think the GBP/USD is going to break out then you should be looking to buy above 1.3550, with a target of 1.3650 and a stop loss below 1.3480.

EUR/USD Outlook: Trendline Keeps Price Firmly Above Water

Over at the EUR/USD we’re currently sitting at 1.1740 and holding firm above that fancy trendline that’s been supporting the price since April. We’ve got some signs of a recovery going on as the price pulls back, with higher lows still intact and the 50 EMA being taken back.

The big resistance zone is sitting just above at 1.1788, followed by the next big hurdle at 1.1850. If we can break through these levels then I think we can start expecting to see the price make a beeline for 1.1900. RSI is starting to bounce back up towards the middle of the chart, suggesting that buyers are getting back into the market without getting too carried away.

If the price does break down below 1.1700 I think the bullish momentum is going to start to look a lot less solid and we could start seeing 1.1649 come back into play.

Trade idea: If you think the EUR/USD is going to break out then you should be looking to buy above 1.1750, with a target of 1.1850 and a stop loss below 1.1690.