Federal Reserve Chair Jerome Powell addressed Congress, reaffirming that the Fed’s decisions rely on data. As tensions in the Middle East eased with a ceasefire between Israel and Iran, the US Dollar weakened, and the Dollar Index dipped below 98.00. The US Dollar Index fell as the ceasefire diminished demand for safe-haven assets. Currently, the Dollar Index is around 97.65, lingering just above its June low of 97.61 due to reduced geopolitical worries.

Geopolitical Impact

Powell’s strong statements did not sway markets regarding a rate cut in July, leading investors to focus on the ceasefire and adopt a risk-on attitude. This shift put pressure on the Dollar as the need for safe-haven assets declined. After Monday’s optimism about the ceasefire, the Dollar Index could not retest the 100.00 mark. Following confirmation of the ceasefire, the Dollar Index continued to decline. Now sitting below 98.00, the Dollar Index faces resistance at this point and is at risk of further losses. The Relative Strength Index (RSI) indicates that short-term momentum is weakening, nearing oversold levels around 38.0.

Market Sentiment

Powell’s testimony and recent moves in the Dollar Index show that the market is now more focused on changing geopolitical situations rather than just monetary policy. His emphasis on data dependency implies that rate changes will depend on clear inflation or employment signals. However, despite this, the market’s focus has shifted toward geopolitical stability. With the ceasefire established, safe-haven demand has dropped, affecting the Dollar’s appeal. We see former support levels now acting as resistance, particularly the key level of 98.00. If the Dollar Index stays below this threshold, it faces greater risks. This situation is driven not just by sentiment but also by technical factors, as the RSI dips below 40, indicating potential price weakness. Investors should note that the retreat from safe-haven positions might push the USD further down, particularly against higher-risk currencies. Although Powell’s tone remains hawkish, expectations have not shifted significantly. This suggests that the market is reacting more to geopolitical events in the short term. The inability to maintain earlier Dollar strength, especially the failure to reach 100.00, indicates fading confidence in further gains. Currently, downside risks are rooted not only in technical issues but also in diminishing geopolitical fears that had previously supported the Dollar. Looking ahead, any upcoming economic data—such as CPI readings or the next jobs report—will serve as important indicators. However, we shouldn’t expect a strong return for the Dollar without new catalysts. The market has clearly shifted towards a risk-on mindset. For future positioning, it’s wise to rethink assumptions about asset direction, considering the reduced geopolitical risk and the market’s limited interest in the Dollar. We can see that previously trusted support levels are now becoming areas of uncertainty. Until the RSI shows signs of recovery or stabilizes above 40, traders should view rallies as corrections rather than clear upward trends. The market landscape has changed, and strategies must adapt accordingly. Create your live VT Markets account and start trading now.

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