US Dollar Price Forecast: DXY Rises on Middle East Risk – GBP/USD and EUR/USD to Fall?

Market Overview

During the European trading session, the us dollar managed to pick up some positive steam. As of now, the US Dollar Index, a solid barometer for the greenback’s value against six key currencies, is sitting at 99.45, having notched a gain of 0.25%.

The boost though was mainly driven by a perfect storm of events – the ongoing shenanigans in the middle east and the Fed’s continued hawkish tone on monetary policy.

US Dollar Finds Help in Escalating Tensions in Middle East

It was like we said before – the greenback’s strength is being put on solid footing by a rapidly escalating scenario unfolding in the middle east. Bloomberg reported that Iran’s Foreign Minister Abbas Araghchi essentially warned that if they get hit again they wont be playing nice – zero restraint was the exact phrase he used.

And then Saudi Arabia’s Foreign Minister Faisal bin Farhan Al Saud chipped in with his own warning that they might not hesitate to take military action – all this has got investors looking around for a safe place to put their money which – not surprisingly – is ending up with the us dollar.

Fed’s Rate Pause Plus Hawkish Commentary Gives the US Dollar a Leg Up

On the other hand, the Fed took a pretty clear stance – keeping interest rates steady on the wednesday conference call said alot about how worried they are about the impact of those rapidly rising oil prices on inflation.

And Fed Chair Jerome Powell made it clear that a rate hike still very much on the table they’re not ruling it out at all – and lets not forget some of the other Fed officials out there are sounding pretty hawkish too.

For traders that means the Fed is serious about keeping prices in check and that’s good news for the greenback.

U.S. Dollar Index Forecast: DXY Holds 99.30 as 100.06 Caps Recovery

The US dollar is hovering just above 99.31 on the 4-hour chart, steadying after a pretty sharp stumble from its recent high of 100.40. We just saw price touch the 0.786 Fibonacci retracement at 98.93, bounce off it and then find some support on a trendline that’s been driving the bigger price swing throughout March.

As things stand though, momentum still looks pretty contained by the 0.236 retracement at 100.06 and the 50-period moving average at about 99.52. So some recovery but still looking a bit fragile. The RSI is bobbing around the 40s, which is sort of saying neutral-to-weak momentum, not quite the sign of renewed strength we were looking for.

If the dollar can make a move above 99.76 for a bit of a sustained spell, then 100.06 and 100.40 are both in play. On the flip side, if 98.93 can’t hold then we’re probably in for a deeper retracement to 98.49 and 98.07.

GBP/USD Forecast: Pound Tests 1.3430 Trendline Barrier

GBP/USD is at 1.3430 on the 4-hour chart, after a fairly sharp bounce back up from the 1.3290 base area. This has taken price right back up to the descending trendline that has been capping the bigger moves since late February – and that’s still under a bit of pressure.

The pair’s still below the 200-period moving average at 1.3480, but the 50-period average at 1.3335 is starting to turn a bit supportive. RSI is poking its head up over 55 – pretty clear sign of improving momentum.

If the pair can break clear of the trendline then we might start to see 1.3525 and 1.3575 come back into play. If that’s not going to happen then we might see price rotate back down to the 1.3399 and 1.3335 support areas.

EUR/USD Forecast: Rebound Faces Channel Resistance Near 1.1613

EUR/USD is currently trading at 1.1574 on the 4-hour chart, after a pretty sharp rebound from 1.1413 low. The pair’s still within a pretty clear descending channel, but the rebound has taken price up above the 0.236 Fibonacci retracement at 1.1473 and nudging it towards the 0.382 level at 1.1510.

Momentum’s improved a bit, with the RSI moving up over 50 – that’s a decent sign of short term bullish pressure. However the pair is coming up against the 1.1613 wall, where the 0.786 retracement and the upper channel boundary meet.

If a sustained break above 1.1613 is managed then we might start to see 1.1667 and 1.1737 come back into play. On the other hand, if price can’t hold above 1.1539 we might start to see a bit of renewed downside risk to 1.1473 and 1.1413.