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The dollar is under pressure again this morning, with DXY hovering around 0.3% below Friday’s close and now testing an important technical support zone near the 98.0 level.
Over the weekend, failed US-Iran talks in Islamabad initially gave the dollar a brief lift. But that strength quickly faded. As Monday progressed, oil prices rolled over—and the dollar followed suit.
Markets are taking a relatively calm view of developments. While the Strait of Hormuz blockade signals re-escalation, the thinking is that it may ultimately force Iran back to the negotiating table due to the economic hit from lost oil exports. That expectation is keeping risk sentiment stable and limiting sustained USD upside.
Further downside pressure came after Donald Trump commented that Iran had reached out to restart talks. That triggered another round of USD selling, reinforcing the idea that diplomacy remains the base case.
From a positioning standpoint, markets remain heavily skewed toward a benign outcome. That means a lot of good news is already priced in. While this does leave room for a dollar rebound if tensions flare up again, recent price action suggests any initial bounce is likely to be faded unless escalation becomes more serious.
Technical View: Key Support in Focus
From a technical perspective, DXY is now sitting right on a notable support zone around 98.0—an area that previously acted as resistance in late February before breaking higher in March.
- This level is now being retested as support, making it a key near-term inflection point.
- Price action shows a steady drift lower into this zone rather than a sharp sell-off, which often suggests a lack of aggressive bearish momentum.
- If this support holds, we could see a near-term bounce, especially given how stretched sentiment already is to the downside.
However, a clean break below 98.0 would be significant. It would open the door toward a move back to pre-conflict levels and signal that markets are fully embracing a de-escalation narrative.
Macro Overlay Still Matters
There’s also ongoing focus on China. Any sustained disruption to Iranian oil exports is particularly problematic for Beijing, which could increase pressure for a quicker resolution behind the scenes.
If we do get clearer signs of a lasting ceasefire, that could be the catalyst for a deeper move lower in DXY—even with relatively firm energy prices. The broader driver here is policy divergence, with other central banks sounding more hawkish than the Fed, keeping the dollar on the defensive.
On today’s calendar, PPI and NFIB Small Business Optimism are due, but neither is expected to materially shift the market narrative.
Bottom line:
DXY is testing a key support zone around 98.0. While fundamentals are leaning against the dollar, the technical setup suggests a bounce is possible from here—but unless geopolitics meaningfully deteriorate, rallies may continue to be sold.
