The Middle East situation easing expectations and inflation concerns are at odds, with the US dollar index falling slightly.

Huitong Finance APP News—— After the U.S. Dollar Index continued to rise for five consecutive trading days, it showed signs of a pullback. During the Asian session, it has retreated from its stage high and is currently trading in the 100.40-100.45 range. Previously, the dollar’s strength was mainly driven by safe-haven demand and rate-hike expectations, while the current pullback more reflects the market’s phase of sentiment repair.

From the market environment, the Middle East situation remains the core variable driving the current trend. The latest news shows that the United States has become more open to ending military operations; even if the Strait of Hormuz has not fully resumed navigation, it may still consider reaching an agreement. This statement, to a certain extent, boosts market risk appetite and weakens the dollar’s appeal as a safe haven.

However, the situation still carries significant uncertainty. The U.S. also warned that if the relevant agreement cannot be reached, it may take strong action against key energy infrastructure, while Iran remains cautious about direct negotiations. Combined with the United States’ continued deployment of military forces to the Middle East, market expectations for a rapid easing of the situation are constrained.

Against this backdrop, oil prices have recorded a certain degree of pullback, easing inflation expectations to some extent. As energy prices fall, U.S. Treasury yields come under pressure, weakening the interest-rate support for the dollar. This is also one of the important reasons the U.S. Dollar Index has pulled back from its high level.

Some analysts noted, “The current dollar trend depends on the dynamic balance between risk sentiment and inflation expectations, and a one-way trend is unlikely to form in the short term.”

Nevertheless, from a mid-term perspective, the dollar still has some support. On one hand, if geopolitical risks heat up again, safe-haven demand will flow back into the dollar. On the other hand, high oil prices may still push up inflation expectations again in the future, leading the market to maintain expectations that the Federal Reserve will tighten policy. This potential “re-inflation” risk limits the dollar’s downside space.

The market has currently shifted its focus to upcoming U.S. economic data, including JOLTS job openings and the consumer confidence index. These data will provide important clues for assessing the resilience of the U.S. economy and may have a direct impact on expectations for Federal Reserve policy.

From a technical perspective, on a daily basis, after the U.S. Dollar Index broke through the 100 level, it continued its upward trend, but it pulled back after touching the stage high, indicating there is some selling pressure overhead. The overall structure still maintains a bullish layout, but short-term momentum has weakened. Resistance to watch is the 100.80 and 101.30 areas; if it breaks through again, it may open up additional room for upside. Support is located at the 100.00 integer level and the 99.60 area; once broken, it could trigger a deeper correction.

On the 4-hour timeframe, after the price pulled back from the high, it entered a consolidation phase. The moving-average system is flattening, suggesting the short-term trend is unclear. The RSI has fallen from the overbought zone into the neutral range, and momentum has cooled noticeably. The MACD has formed a bearish crossover and is gradually moving toward the zero axis, indicating there is further pullback risk in the near term. If 100.00 is broken, it may test the 99.60 support; conversely, if it regains stability above 100.80, bulls may still be able to restore control.

From the perspective of the overall technical structure, the U.S. Dollar Index is currently in a high-level consolidation phase, with intertwined factors for both bulls and bears; in the short term, it is more likely to keep trading sideways.

Editor’s Summary

Overall, after experiencing consecutive gains, the U.S. Dollar Index has shown a technical pullback, but fundamental support has not yet been clearly weakened. Uncertainty in the Middle East situation and changes in inflation expectations are the core drivers of the current market. Technically, the daily trend still leans bullish, but momentum on shorter timeframes has weakened, and the 4-hour timeframe has entered a consolidation phase. Overall, in the short term the dollar is more likely to maintain a pattern of high-level range trading, and investors should watch key support and resistance levels as well as how macro data changes affect market expectations.

(Editor: Wang Zhiqiang HF013)

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