Dollar Strength Holding

The US Dollar remains up off the week’s lows as traders monitor developments in the Middle East and shifting Fed expectations. There is still some confusion and lack of clarity over alleged US/Iran peace talks with Iran insisting that no dialogue with the US has taken place yet, though it is reviewing Trump’s peace proposal. Meanwhile, Trump has reportedly sent 2000 ground troops to the Middle East to further strengthen the threat of a ground invasion if a ceasefire is not achieved. For now, USD remains supported via higher oil prices with crude continuing to hold around $100 p/b. While energy prices remain elevated, USD should continue to grind higher. If we do hear news of a breakthrough in peace talks, however, USD could sink firmly as oil prices recoil.

Hawkish Fed Comments

Away from the Middle East and oil prices, we’ve heard some hawkish Fed commentary in recent days. Fed’s Miran, a well-known dove who has previously voiced support for further cuts said that he has lifted his end of year rate forecast as a result of inflation risks linked to the Iran war. This echoed comments from Fed’s Barr earlier in the week who warned that US rates may stay higher for longer as a result of higher energy prices and inflation risks.  Looking ahead today, traders will be watching the latest US jobless numbers, expected at 211k up from 205k prior. If confirmed, or beaten, this should keep USD supported into the weekend though Middle East news will remain the stronger driver.

Technical Views

DXY

For now, the 99.15 level is holding as support with price still above the broken bear channel. In this light, focus remains on a continuation higher and a fresh attempt at breaking out above 100.36. If we push lower instead, however, focus will turn to 98.24 as the next support to watch.