US Dollar Price Forecast: DXY Rises as Hormuz Crisis Deepens – Can GBP/USD and EUR/USD Hold?

Market Overview

The US dollar continued its upward trend, staying strong on this day. As things stand right now, the US Dollar Index (DXY) which is an index tracking the US dollar against a basket of 6 major world currencies is hovering around 99.70. The index had a modest day of gains.

Geopolitical Tensions Support the US Dollar

All of a sudden the US dollar started to pick up pace once the situation in the Persian Gulf heated up. Honestly, the US military and the National Security Council did say they underestimated just how serious Iran was about closing the Strait of Hormuz in response to all the ongoing US military actions over there.

It seems that Iran’s new leader, Mojtaba Khamenei, is sticking to his guns when it comes to keeping the Strait of Hormuz closed, and is warning that Tehran will just keep launching attacks on its neighbours in the Persian Gulf.

This has got a lot of investors rushing to buy US dollars as a safe bet. And because of that, the dollar is expected to keep on going strong against other major currencies for now.

Fed Rate Uncertainty and Upcoming Inflation Data Influence US Dollar

On the flip side, the US Federal Reserve’s path has got more uncertain, due to all the increasing inflationary pressures that are being driven by oil prices. People were expecting interest rates to start coming down, but now that’s not looking so likely. The thing is, investors are now keeping a real close eye on the key economic releases that are coming up, particularly the US inflation numbers for January, which are set to drop on Friday.

The experts are predicting the headline inflation number (PCE) will be 2.9% year-over-year and the core inflation number will be 3.1%. If the actual inflation numbers come in lower than expected, then that might have some people questioning the US dollar for a short period of time. The dollar is still likely to stay strong though, because of the ongoing situation in the Middle East.

US Dollar Index Forecast: Can DXY Sustain Break Above 100?

The Dollar Index (DXY) is flirting with 100.08 after managing to push through the long anticipated 99.70 resistance zone on the 4-hour chart. The price continues to sit firmly above both the 50 and 200 period moving averages, all of which is a pretty big deal because it reinforces the bullish trend.

RSI is getting close to 65, which suggests the upside momentum is picking up but also that we might be getting close to the edge of getting a bit overcooked. If the price can just hold onto 99.70 then we could see a run up towards 100.60 and 101.00.

However, if the break above 99.70 fails we can probably expect a pretty rough ride back down to 99.25 trendline support. Dollar is being held up by a mix of risk aversion and safe-haven flows at the moment.

GBP/USD Technical Analysis: Bearish Break Signals Further Downside Risk

GBP/USD is sitting at 1.3260 after the price broke through that important rising trendline support on the 4-hour chart. And now we’re seeing price positioned below both the 50 and 200 period moving averages which is a big deal because it suggests the momentum has turned decidedly bearish.

RSI has dropped right down to 35, which accurately reflects the fact that we’re seeing a real acceleration in the downside pressure. Immediate support kicks in around 1.3200, followed closely by 1.3100.

For the price to turn things around you’d need to see a sustained recovery above 1.3400 otherwise the bearish bias is going to remain firmly in place. That being said, you’d probably be wise to expect a bit of selling at any rallies given the dollar strength and risk-sensitive flows are weighing so heavily on sterling.

EUR/USD Technical Forecast: Downtrend Extends Toward 1.1400 Support

EUR/USD is still struggling to stay afloat near 1.1460 within that distinctively downward sloping channel on the 4-hour chart. Price is still firmly below both the 50 and 200 period moving averages which all adds up to a pretty bearish picture.

And with the RSI stuck around 30-35 its not signaling a reversal just yet but it is telling us that we’re pretty close to getting a bit over sold.

Key support is waiting for us at 1.1400, and if that gets broken then 1.1330 comes into play. We do have some resistance up at 1.1580 but at this point that looks like a long shot until the price can reclaim the midpoint of the channel. The message from all this is that until the dollar demand eases then the downside risks are just going to keep on coming.