The US Dollar is holding steady at 97.93 despite increasing tensions between Israel and Iran. These geopolitical issues could keep risk appetite low, impacting high-beta currencies like the AUD and NZD if the situation escalates. If tensions ease, the dollar could weaken, allowing riskier assets to gain support. This week’s key event is the FOMC meeting, where markets expect two interest rate cuts by the end of the year. If the Fed signals a different stance, it could strengthen the dollar.

Dollar Momentum Update

Currently, the dollar shows a slight bearish trend, but the RSI suggests it might rise from nearly oversold levels. The dollar faces resistance at 99.20 and 99.70, with support at 97.60. Watch for upcoming data from the Empire Manufacturing report. In other news, EUR/USD rose to 1.1600 due to a weaker US dollar, while GBP/USD moved above 1.3600, driven by geopolitical concerns. Gold retreated after reaching multi-week highs close to $3,400. Additionally, Chinese data indicates it is on track for its growth target in 2025. The Dollar Index remains around 97.93, showing that despite the rising tensions in the Middle East, there is no panic-driven surge for safe havens yet. However, the risk environment is unpredictable. Tensions between Iran and Israel could quickly impact high-beta currencies like the Aussie and Kiwi, which are already affected by shifting sentiments. If there’s even a hint of diplomatic easing, we may see renewed interest in these higher-risk currencies, likely diminishing demand for the dollar as the need for safety decreases. It’s a delicate balance that we will monitor closely this week.

Federal Reserve Anticipations

Much attention is on Wednesday’s Federal Reserve meeting. Markets expect two rate cuts before the year ends. If Fed Chair Powell hints at a hawkish stance, it could quickly change this outlook and boost dollar demand. Should the Fed emphasize patience or express concerns over persistent inflation, carry trades may become appealing, pushing the dollar towards the 99.70 level. In contrast, dovish signals or lowered growth forecasts could see the DXY drift towards 97.60. Right now, the daily momentum shows a slight downward trend for the dollar, but the RSI, approaching oversold levels, indicates potential for a short-term bounce. We view any dip below 98.00 as a chance to reassess, especially ahead of significant economic data releases. The Empire Manufacturing report, while often considered secondary, could have a greater influence on market prices now than in the past. Any significant deviation from expectations might sharpen market positioning ahead of the Fed’s decision. Meanwhile, the Euro rose towards 1.1600, benefiting from a weaker dollar. This increase seems more due to dollar weakness than any new confidence in Eurozone data. The Pound also climbed as traders focus on geopolitical risks, pushing it above 1.3600 with little UK-specific news to support this move, making it vulnerable to retracement if the dollar strengthens again. Gold, which had surged on safe-haven demand, pulled back after nearly hitting $3,400. This retreat suggests that some geopolitical premium is fading, at least temporarily. The overall outlook for gold remains positive, especially if Fed statements are dovish or if geopolitical tensions heighten again. Chinese economic data has provided a more optimistic view, suggesting steady progress towards growth targets for next year. While this is not strong enough to drive global risk on its own, it offers context for how commodities and Asian currencies may perform. We remain vigilant for short-term market shifts. Those engaged with rate-sensitive investments or volatility strategies should follow the FOMC closely, along with risk sentiment changes tied to developments in the Middle East. The upcoming week could present both opportunities and potential false signals. Create your live VT Markets account and start trading now.

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