The Dollar Market Enters a Temporary Pause Ahead of Major Event Risks
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With the US Dollar softening on the US-Iran peace framework, we see the current market as a temporary pause. The Dollar Index (DXY) is holding above key support around 99.50, but traders are clearly hesitant to take a strong position. The real moves will likely come after the major event risks of this week are behind us.

Our focus is now on the Fed’s meeting this Wednesday, June 18th. May’s CPI report showed core inflation still at a stubborn 3.8%, and the latest jobs report added a solid 210,000 positions, which gives the Fed little reason to signal rate cuts. We expect them to hold rates steady but maintain a hawkish outlook, which should provide a floor for the dollar.

Given the two major events this week, we believe implied volatility is too low. We are positioning for a breakout by buying options that profit from a large price swing, regardless of direction. A long straddle on the EUR/USD, for example, could be effective in capturing the move following either the Fed’s statement or the final peace deal signing on Friday.

Fed Meeting and Geopolitical Risks Create Opportunity for Option Strategies
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If the peace agreement is signed smoothly, we anticipate WTI crude oil prices will fall further, potentially testing the low $80s after peaking near $98 during the conflict. Historically, such as during the de-escalation periods of the early 2010s, easing Mideast tensions have correlated with lower energy costs and a softer dollar. This outcome supports buying puts on the DXY, targeting a move toward the 50-day moving average at 98.88.

Conversely, any hint of the deal faltering or an aggressively hawkish Fed statement would likely send the dollar surging through resistance. The 100.50 level on the DXY is the key line to watch. We are prepared to buy DXY call options to capitalize on a flight to safety should geopolitical risk return.

For now, risk management is paramount. We recommend using options to define your risk on any new directional trades. For instance, traders who are already short the dollar should consider buying cheap, out-of-the-money calls to hedge against a hawkish surprise from the central bank on Wednesday.

The US dollar weakened against major peers on Monday as safe-haven positioning was pared back after the United States and Iran agreed a framework peace deal that would reopen the Strait of Hormuz. The US Dollar Index (DXY) traded near 99.57 after touching a one-week low around 99.38, though losses were checked by caution ahead of the final agreement expected to be signed on Friday. Attention also turns to the Federal Reserve (Fed) decision on Wednesday, with rates widely expected to be left unchanged.

Markets see the dollar retaining support if the Fed maintains a hawkish stance. Before the conflict, pricing implied at least two rate cuts this year, but higher energy costs have lifted inflation expectations and led to some positioning for a possible hike by year-end; a further fall in oil could temper that shift, yet cuts are unlikely until inflation moves closer to the 2% target. Technically, DXY remains above the 50-, 100- and 200-day SMAs, with support at 99.50, then 98.88 and around 98.70, while resistance is near 100.50; RSI sits in the mid-50s and MACD is nearing its signal line.