US Dollar Forecast: DXY Rebounds on Hormuz Risk – Are GBP/USD and EUR/USD Ready to Slide?

Key Points

• Safe-Haven Demand: Stalled US-Iran peace talks and friction in the Strait of Hormuz drive traders back to the safety of the US Dollar.
• Fed Rate Outlook: Persistent energy-driven inflation risks suggest the Federal Reserve will maintain higher rates for longer, supporting DXY.
• Eurozone Weakness: A sharp drop in the April ZEW survey to -17.20 highlights growing growth concerns, keeping EUR/USD under pressure.
• UK Stability: Steady 3.3% YoY inflation in March provides a floor for Sterling, keeping the Bank of England in a holding pattern.

Market Overview

The US Dollar Index (DXY) has seen a small bounce around the 98.40 – 98.60 mark, supported by ongoing uncertainty over the US-Iran ceasefire. The recent extension of the ceasefire by Trump provided some relief, but the second round of talks is stalled as Iran has refused to participate. The situation in the Strait of Hormuz remains tense, prompting traders to seek the safety of the dollar. Higher energy prices pose a risk for inflation, leading markets to believe that the Federal Reserve will not lower interest rates anytime soon, further supporting the dollar even in risk-on market conditions.

The Euro is under significant pressure, trading around 1.1700-1.1750. The latest Eurozone sentiment data showed a sharp decline, with the April ZEW survey dropping significantly, which raises concerns about growth and exacerbates worries over energy shocks. The European Central Bank (ECB) is currently adopting a wait-and-see approach, which means no major moves are expected in the near term. The Euro may receive temporary support during de-escalation periods, but renewed tensions in Hormuz hinder its ability to gain traction against the dollar.

The British Pound is holding steady around 1.3500 – 1.3520, buoyed by stable UK inflation at 3.3% YoY in March and a healthy labor market, which keeps the Bank of England from tightening policy. However, like other currencies, it remains sensitive to significant movements in the dollar and developments in the Middle East, struggling to gain momentum.

Technical Analysis

DXY Rebounds to $98.65: Testing Key Trendline Resistance

The US Dollar Index is currently hovering around $98.65 after recovering from a base of $97.60. It faces a critical test against a descending trendline of resistance between $98.70 and $98.80. The price has reclaimed the 50 EMA, which is a positive sign, while the 200 EMA is still distant at $99.00, limiting upside potential. Recent bullish candles indicate some strength, but the upper wicks suggest hesitation among bulls. A breakthrough above $98.80 could lead to targets of $99.20 and $99.50, while failure to break through may see a retreat to $98.20 and $97.80.

GBP/USD Holds $1.3500: Trendline Support Keeps Bulls Alive

GBP/USD is trading at $1.3504, resting on a supportive trendline. The 50 EMA is above the current price, while the 200 EMA is lower at around $1.3380, which is favorable for bulls. However, recent price action shows less aggressive buying, and sellers are creating indecision around the $1.3580 highs. The RSI is neutral, indicating a potential holding pattern. If support at $1.3480 holds, there is a chance to target $1.3580 and $1.3650; otherwise, a loss of support could lead to declines towards $1.3450 and $1.3380.

EUR/USD Slips Toward $1.1700: Channel Support Under Pressure

EUR/USD is trading at $1.1701, having drifted lower within an ascending channel that failed to maintain support at $1.1800. The price is now testing the lower boundary of the channel and hovering around the 50 EMA. The 200 EMA remains significantly lower. The candle patterns indicate lower highs, suggesting that short-term sellers are still active. The RSI has dropped to 40, indicating waning momentum. A break below $1.1700 could lead to further declines to $1.1650 and $1.1600, while a bounce from this level might reignite bullish momentum towards $1.1780 and $1.1850.