Rabobank’s Jane Foley said the US Dollar Index (DXY) is trading close to its 100- and 200-day simple moving averages at 98.479 and 98.568. She said these levels are acting as resistance and markets have been cautious about adding to long US dollar positions, despite renewed Middle East tensions.
Foley said there is still a risk the US dollar could rise in the coming weeks, while recent gains could also be reversed quickly. She linked the dollar’s safe-haven role to its liquidity and its wide use in global transactions.
Dollar Outlook And Market Positioning
Rabobank expects the Federal Reserve to cut rates further this year. It said this could moderately weaken the US dollar against the euro over a 3 to 6 month horizon.
Rabobank said it does not expect long euro positions to return to last year’s levels. It also said any rise in EUR/USD in the second half of the year may lack strong conviction.
Back in late 2025, we noted the US Dollar Index was stalling around its 100- and 200-day moving averages near the 98.50 level. At the time, there was a reluctance to push the dollar higher despite some geopolitical risks. Still, we saw the potential for the dollar to strengthen in the coming weeks due to its unmatched liquidity.
That view has since been validated, as the DXY is now trading significantly higher, around 105.20. The anticipated Federal Reserve rate cuts have been delayed by stubbornly persistent inflation, with the latest CPI data from April 2026 showing an unexpected rise to 3.1% year-over-year. This has forced markets to reprice expectations, now anticipating only one rate cut this year instead of the three previously forecasted.
Implications For Derivatives And Hedging
For derivative traders, this suggests that buying call options on the dollar, or put options on currency pairs like the EUR/USD, remains a viable strategy. With the Fed signaling a “higher for longer” stance on interest rates, implied volatility on currency options has ticked up to around 7.5% for 3-month contracts. This environment favors strategies that profit from continued dollar strength or further euro weakness.
We see little reason to build up long euro positions, a sentiment we held back in 2025. With EUR/USD currently struggling to hold above 1.0550, any rallies are likely to be short-lived and lack strong conviction. Therefore, using forward contracts to hedge euro-denominated receivables or maintaining short futures positions on the EUR/USD could be prudent.
The dollar’s role as a safe haven is also critical in the current climate of ongoing trade disputes and regional instability. This status is driven by its deep liquidity, which no other currency can match. This fundamental advantage provides a floor for the dollar, suggesting that even if the Fed eventually pivots, any significant sell-off will likely be limited.
