USD Gains Traction: Breakout or Reversal? Key Technical Scenarios to Watch This Week

• Hormuz flare-up keeps oil bid and leaves U.S. dollar coiling just under the 99.20 level safe-haven flows are one headline away from a breakout.
• The Fed’s June “one-and-done” dot-plot and 4.25-4.50 % hold cement yield support while price grinds above the 1-hour equilibrium zone.
• Above 99.40 DXY targets 100; slip under 98.70 tilts it toward 98 level - watch that 98.70-99.40 corridor.

Strait-of-Hormuz Risk

Previous forecast:

Current Price Action:

Oil’s spike on Iranian retaliation threats reminds the market that the USD is still the first port of call when global supply chains wobble. Energy-linked inflation risks also nudge Treasury yields higher - another tail-wind for the greenback.

With this conflict flaring up, this could revive the dollar’s safe-haven status as markets are flowing in, again, in the U.S. dollar (DXY).

Fed Policy: A Hawkish Hold

The Fed left the funds rate at 4.25-4.50%, but the new “dot plot” now signals just one cut in 2025. Previously, two had been priced in.

“Higher-for-longer” keeps policy-rate differentials tilted in the dollar’s favour.

Cooling but Stick Inflation

May CPI slowed to 2.4 % y/y, core to 2.8 %. Progress is steady, yet still above target. This gives the Fed cover to wait for “greater confidence” before easing, underpinning yields and U.S. dollar.

Macro Verdict: Dollar Gaining Traction

With geopolitical risks and Fed, potentially, signaling just 1 rate cut for 2025, this could send the dollar to more upside, potentially, reaching 100 levels.

Technical Outlook: Bullish Case On-Point

Previously, Dollar Regains Control After Fed Pause: Bullish Scenario On-Point, More Upside Ahead?, we outlined potential scenarios that could unfold with the dollar.

Bullish Case

Bearish Case

Either dollar would continue to push through to the upside or fade to the downside. And apparently, the bullish scenario is currently materialising as of this writing.

Dollar is currently on a consolidation phase awaiting for a breakout. The good sign for bulls on this range-phase is that its currently consolidating above the equilibrium level, giving us signs of strength. Or unless, dollar does not break.

Bullish Scenario: Above Equilibrium + Breakout + Bullish Follow-Through

As long as dollar stays above of the equilibrium level, this could give us signs of strength until we break out of the level. Another thing to consider is dollar closing above with a bullish follow-through.

• DXY stays above equilibrium level
• Break of 99.20

Bearish Scenario: Breakdown of Range

If dollar fails to gain traction by holding ground above equilibrium and breaks down the range with no signs of bullish traction, we might see dollar to continue on the downside.

• Fail to hold above equilibrium
• Range breakdown
• Lacks bullish traction

Red Folders this Week

With all these in mind, as long as we see dollar strength, we’d likely see foreign pairs on a downside move in favor of the greenback. Otherwise, as strength fades and fails to break, we might see majors bouncing back against the U.S. dollar.

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