US Dollar Price Forecast: Geopolitical Tensions and Fed Watch Drive Greenback – GBP/USD and EUR/USD Under Pressure?

Market Overview

The US dollar has continued to receive support as the conflict between the US, Israel, and Iran enters its third week. The shutdown of the Strait of Hormuz has increased oil prices which has led towards concerns that because of war-driven inflation, the Federal Reserve may put off interest cut plans.

Market players are just waiting for the outcome of the Federal Open Market Committee two day meet starting on Wednesday. The dollar is benefiting from safe-haven flows but it looks as though the bulls are being cautious and waiting for some clarity on inflation & energy prices before placing bigger bets.

US Dollar Index (DXY) – Technical Analysis

The Dollar Index (DXY) is currently hovering around 99.74, and still holding above that 99.60-99.70 support zone. This area is where a rising trendline & short term set-up meet, and the index is still forming higher low after higher low on the chart. While the dollar has retreated from the recent highs of 100.50, the overall bullish trend is still intact and inside its rising channel.

Technically speaking, the index is still above the moving averages both 50-period & the 200-period, and that does help the dollar to stay strong. Although the RSI has slipped back to the 45-50 zone which means momentum has cooled, still there is no clear sign that we are seeing a trend reversal. The immediate resistance zones are now at 100.50 and 100.90, and if the dollar breaks above that then the 101.30 level is probably going to come into play.

On the other hand if we were to see a sustained move below that 99.70 support level then the current bullish bias is going to be negated & that should open the door to a deeper correction all the way to 99.20.

GBP/USD Technical Analysis

GBP/USD is trading around 1.3324, & trying to make a bit of a modest correction after finding a floor near 1.3225. The pair is actually testing a really important zone near 1.3340 where a falling trendline & previous resistance meet.

Despite the recent small bounce, the pair is still below both 50 day & 200 day moving averages which keeps the primary bias very much to the downside.

Although the RSI has improved to the 50-55 zone which means short term momentum is slightly better, the overall structure of the pair is still bearish.

As long as the pair stays capped below that 1.3340 resistance, expect sellers to look for a retest of the 1.3225 support zone. A break above 1.3340 would be needed to shift the outlook to a more neutral stance & that might open the path towards the 1.3408 resistance level.

EUR/USD Technical Forecast

EUR/USD is hovering around 1.1506 as it tries to push upwards within a broader falling channel. After rebounding from the 1.1410 support zone, the pair is now bumping up against dynamic resistance between 1.1510 and 1.1540.

This zone is really important as it’s where the 50 period moving average & the channel’s mid-point meet. This is essentially acting as a technical ceiling to this current recovery.

The overall bias for the pair is still bearish because it is still below the 200 period moving average. Although the RSI has climbed back to 55 which means there is a bit of buying interest, the risk is that the pair reverses as long as it stays within its bearish channel.

A successful break above 1.1540 could pave the way for a move towards 1.1570 and 1.1610; however, if we get rejected at current levels then it would likely just see the downside trend continue towards 1.1470 and a retest of the 1.1410 lows.

Conclusion

The overall outlook for the US dollar is still very much bullish thanks to the geopolitical risks & inflation concerns but still providing a supportive background. Key levels to watch include the 99.70 support on the DXY and the 1.3340 resistance for GBP/USD.

While technical indicators suggest a temporary cooling of momentum, the broader trend really hinges on the FOMC statement on Wednesday & how the situation in the Middle East develops.