EUR/USD edges higher to around 1.1405 during Wednesday’s Asian trading session. Elevated energy prices are raising concerns about renewed inflationary pressures, reinforcing expectations that the European Central Bank may maintain a tighter policy stance. Meanwhile, geopolitical tensions remain in focus after President Donald Trump downplayed the chances of near-term negotiations with Iran, as US military operations against the country entered an eleventh consecutive night.
EUR/USD posts modest gains near 1.1405 during Wednesday’s early Asian trading hours, supported by the European Central Bank’s increasingly hawkish outlook. The Euro finds demand against the US Dollar as investors position ahead of the ECB’s policy announcement scheduled for Thursday.
European sovereign bonds advanced earlier this week as persistent geopolitical risks in energy markets and concerns over renewed inflation pressures led traders to anticipate a less accommodative ECB policy trajectory.
Although the ECB is broadly expected to keep its deposit rate unchanged at 2.25% at the July meeting, market pricing suggests rates could climb to 2.66% by December and 2.73% by February 2027. According to Reuters, investors have also fully priced in a rate hike for September.
On the geopolitical front, US President Donald Trump downplayed the likelihood of near-term talks with Iran as hostilities continued and Yemen’s Iran-backed Houthi forces renewed threats against shipping in the Red Sea. Trump warned on Tuesday that Washington would retaliate if maritime routes were disrupted, though he provided no details on the potential response.
Meanwhile, Iran’s senior military leadership stated that Tehran would broaden its military operations and target US and allied interests throughout the region should Washington strike Iranian nuclear facilities, according to Xinhua. The escalating Middle East conflict could strengthen demand for traditional safe-haven assets, including the US Dollar, potentially limiting further upside in EUR/USD.
Major currency pairs traded within familiar ranges early Tuesday as investors avoided making aggressive moves while monitoring developments in the Middle East. Attention now turns to Germany and the Eurozone’s ZEW Economic Sentiment surveys, while the US economic calendar remains light for the remainder of the day.
After Monday’s volatile session, crude oil prices eased modestly, with West Texas Intermediate (WTI) slipping around 0.5% to trade near $82 per barrel. Oil initially retreated after reports suggested mediators had proposed a 10-day ceasefire between the United States and Iran to revive diplomatic negotiations. However, hostilities continued to escalate.
US President Donald Trump warned that Iran would face consequences following the deaths of American service members, while US forces carried out strikes for a tenth consecutive day, targeting areas near Sirik, Bandar Abbas, Qeshm Island, Chabahar, and Konarak. Iran responded with attacks on US assets across the Gulf, keeping geopolitical tensions elevated.
Oil Supported by Ongoing Geopolitical Risks
Despite signs of diplomatic engagement, analysts remain cautious. Deutsche Bank noted that Iran acknowledged receiving proposals from international mediators, but escalating rhetoric from both Yemen’s Houthi movement and President Trump helped push Brent crude to settle 1.27% higher at $89.22 per barrel.
OCBC warned that any broader escalation could revive concerns over a prolonged disruption to global oil supplies, potentially lifting crude prices back above $100 per barrel. Such a scenario could increase market volatility, weaken demand for carry trades, and reinforce demand for the US Dollar as investors seek safe-haven assets.
Fed Faces Fresh Inflation Concerns
The US Dollar Index (DXY) extended Monday’s gains by more than 0.2%, although it traded sideways just below the 101.00 level during Tuesday’s European session.
According to Commerzbank’s Volkmar Baur, persistently high energy prices could make it increasingly difficult for the Federal Reserve to avoid raising interest rates. While policymakers typically focus on core inflation, sustained increases in oil prices risk feeding into broader inflation through second-round effects, complicating the Fed’s policy outlook.
Sterling Softens Despite Stable Labor Market
UK labor market data showed the ILO unemployment rate remained unchanged at 4.9% in the three months to May. Meanwhile, average earnings excluding bonuses increased 4.3% year-over-year, below expectations of 4.5%.
The softer wage growth limited Sterling’s recovery, although GBP/USD edged slightly higher to around 1.3450 after three consecutive daily declines. Investors now await Wednesday’s UK inflation report.
New Zealand Dollar Outperforms After Inflation Surprise
New Zealand’s second-quarter inflation accelerated more than expected, with the annual Consumer Price Index (CPI) rising to 4.1%, up from 3.1% in the previous quarter and exceeding forecasts of 4.0%.
The stronger inflation reading boosted expectations that the Reserve Bank of New Zealand could maintain a restrictive policy stance, lifting NZD/USD above 0.5850, its strongest level since early June.
Euro, Canadian Dollar and Yen Hold Steady
EUR/USD traded quietly around 1.1420 after posting modest losses on Monday.
USD/CAD remained above 1.4050 despite Canadian inflation slowing to 2.8% in June from 3.2% previously. The Canadian Dollar also faced pressure after the White House announced that President Trump would impose 50% tariffs on most Canadian imports, citing what Washington described as discriminatory treatment of US automobiles, alcohol, and dairy products.
Meanwhile, USD/JPY held near 162.50. Japanese Prime Minister Sanae Takaichi stated that the government would continue balancing economic support with fiscal sustainability while working to preserve market confidence.
USD/JPY may face downside pressure as the US Dollar loses momentum amid improving risk sentiment sparked by fresh diplomatic developments.
Iran has reportedly received mediation proposals aimed at easing tensions with the United States, including the possibility of a 10-day ceasefire.
Meanwhile, Japanese Prime Minister Sanae Takaichi reaffirmed her commitment to preserving market confidence and ensuring fiscal discipline in Japan’s economic strategy.
USD/JPY advanced for a fourth consecutive session, trading near 162.60 during Tuesday’s European session, though activity remained subdued with Japanese banks closed for the Marine Day holiday.
The pair’s upside may remain limited as the US Dollar struggles to build momentum amid improving market sentiment. Hopes for a reduction in geopolitical tensions emerged after Iranian officials confirmed receiving mediation proposals from international intermediaries aimed at easing the standoff with the United States, including discussions of a possible 10-day ceasefire.
According to Axios, President Donald Trump is considering two contrasting approaches: supporting a temporary ceasefire to allow the reopening of the strategically important Strait of Hormuz or joining Israel in a broader military campaign. The deliberations come as US military assets continue to be deployed across the region while diplomatic efforts remain underway.
Meanwhile, Japanese Prime Minister Sanae Takaichi reiterated the government’s commitment to preserving market confidence and maintaining fiscal discipline. She also highlighted plans to accelerate economic growth, targeting real GDP expansion above 1% and nominal growth exceeding 3% in the near term, while pursuing stronger long-term economic performance.
Investors are now looking ahead to Japan’s June National Consumer Price Index (CPI), due on Friday, for fresh clues on the Bank of Japan’s policy trajectory. Economists expect core inflation, which excludes fresh food, to increase 1.6% year-over-year, compared with 1.4% in May, reinforcing speculation over the central bank’s next policy move.
DXY bulls remain cautious, avoiding aggressive positioning as they await greater clarity on evolving geopolitical risks.
Higher oil prices are stoking inflation concerns and reinforcing expectations of additional Federal Reserve rate hikes, providing support for the US Dollar.
The favorable fundamental environment indicates that any near-term pullbacks are likely to attract fresh buying interest.
The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, is struggling to build on a modest uptick during Monday’s Asian session and is hovering near the 100.80–100.75 area, little changed on the day. Despite the subdued price action, the broader outlook remains supportive for the US Dollar as escalating US-Iran tensions and expectations of a more hawkish Federal Reserve continue to underpin sentiment.
The Middle East conflict intensified over the weekend after the United States carried out a ninth consecutive night of strikes against Iran, following reports of another American service member being killed in Iraq. President Donald Trump stated that the operation was conducted in response to recent US military casualties. Iran retaliated by launching ballistic missiles and attack drones at targets in Bahrain, Jordan, Kuwait, and Iraq, heightening fears of a wider regional conflict. The growing geopolitical uncertainty is encouraging investors to maintain a risk premium in markets, boosting demand for the US Dollar as a traditional safe-haven asset.
At the same time, crude oil prices have surged to their highest levels since June 12, driven by concerns over supply disruptions linked to the closure of the Strait of Hormuz and a US naval blockade of Iranian ports. The sharp rise in energy costs is reviving inflation worries and increasing expectations that major central banks, including the Fed, may need to keep monetary policy tighter for longer. Market pricing reflected in the CME FedWatch Tool continues to indicate the possibility of at least one Fed rate hike in 2026, reinforcing the constructive outlook for the Greenback and limiting downside risks for the DXY.
Looking ahead, the US economic calendar is relatively quiet on Monday, leaving the Dollar largely influenced by remarks from Federal Open Market Committee (FOMC) officials and developments in the Middle East. While geopolitical headlines are likely to remain a key source of volatility, the overall fundamental backdrop continues to favor the bulls, suggesting that any notable pullbacks in the DXY are likely to attract fresh buying interest.
Light Sweet Crude posted strong gains over the past week, a move largely driven by persistent geopolitical tensions in the Middle East that continue to fuel concerns over potential supply disruptions.
The market appears firmly positioned to challenge the $85 per barrel mark. Any near-term weakness or corrective pullbacks are likely to attract fresh buying interest, particularly from short-term traders looking to capitalize on the prevailing bullish momentum.
Gold
Gold retreated below the $4,000 threshold once again during the week, remaining under pressure as investors continue to assess the interest rate outlook. Persistent concerns that elevated borrowing costs could reduce the appeal of non-yielding assets such as gold have weighed on market sentiment.
The $4,000 level remains a key technical support zone. A sustained hold above this area could help stabilize prices, while a decisive break lower may open the door to additional downside pressure.
Silver
Silver came under heavy selling pressure during the week, dropping to a fresh low before attempting a modest recovery heading into Friday’s session. Despite the rebound, the broader technical outlook remains weak, with rallies likely to encounter renewed selling interest as bearish sentiment continues to dominate the market.
The $50 level remains a significant support zone that has influenced price action on several occasions in the past. Given the current downward momentum, a move toward this area cannot be ruled out. Rising interest rates continue to undermine the appeal of non-yielding assets, leaving silver vulnerable to further declines and offering little incentive for bullish positioning at this stage.
CAC 40
The CAC 40 experienced volatile and range-bound trading throughout the week. However, following the sharp decline seen in the previous week, the recent consolidation can be viewed as a constructive sign that the market may be stabilizing. A decisive break above the 8,400 level could pave the way for further gains toward 8,500.
A sustained move beyond 8,500 would strengthen the bullish outlook and potentially trigger a broader upward advance. On the downside, the 8,000 area continues to provide significant support, and as long as the index remains above this level, the longer-term uptrend is likely to stay intact.
Natural Gas
Natural gas prices edged lower over the past week, extending the prevailing bearish trend. The weakness is largely consistent with seasonal demand patterns, as this period of the year typically experiences softer consumption. Under these conditions, short-term rebounds are likely to be viewed as selling opportunities rather than the start of a sustained recovery.
Market sentiment remains tilted to the downside, with traders likely to sell into rallies that show signs of losing momentum. A break below this week’s low could accelerate selling pressure and expose the $2.50 level as the next significant downside target. Given that the market is currently focused on the August contract, a substantial upward move appears unlikely unless an intense and widespread heatwave significantly boosts energy demand across the United States.
USD/CAD
The US dollar came under significant pressure against the Canadian dollar during the week, with the 1.40 level providing a measure of support heading into the weekend. Strength in crude oil prices has contributed to the Canadian dollar’s resilience, as rising energy prices generally benefit Canada’s commodity-linked currency.
The 1.40 area is likely to remain a closely watched support zone, making next week’s price action particularly important for determining the pair’s near-term direction. Recent movements have been influenced by a combination of factors, including ongoing geopolitical tensions in the Middle East, softer-than-expected US CPI and PPI data, and stronger-than-forecast Canadian employment figures released the previous week. Together, these developments have increased pressure on the US dollar while providing support for the Canadian currency.
NASDAQ 100
The Nasdaq 100 declined during the week, revisiting the 28,500 level, a region that has repeatedly acted as an important support zone. The market’s ability to hold above this area is likely to attract attention from investors looking for value opportunities and could help sustain the broader consolidation pattern.
If buyers successfully defend the 28,500 support level, the index may stage a rebound and continue trading within its established range. Under current conditions, the broader outlook still favors a move back toward the 30,000 mark over time. However, a significant deterioration in geopolitical conditions, particularly in the Middle East, could undermine risk sentiment and challenge the bullish scenario.
EUR/USD
The EUR/USD pair continued to hover around the key 1.14 level throughout the week. This area, which previously served as a major support zone, remains an important reference point for traders. Although the euro managed to recover modestly earlier in the week, higher US interest rates have continued to limit upside momentum and provide underlying support for the US dollar.
The broader bias remains cautious, with rallies likely to face resistance if buying momentum begins to fade. Given the current interest rate dynamics and ongoing demand for the dollar, traders may prefer a short-term trading approach, looking to capitalize on brief upward corrections while remaining alert to signs of renewed weakness in the pair.
GBP/USD slips toward 1.3470 during Friday’s Asian session.
The US carried out a sixth consecutive day of strikes against Iran, fueling geopolitical tensions.
Markets continue to increase expectations for additional Bank of England rate hikes this year.
The GBP/USD pair remains under modest pressure, slipping to around 1.3470 during Friday’s Asian session as heightened geopolitical tensions in the Middle East dampen investor risk appetite and lend support to the US Dollar. Market participants are also awaiting the preliminary University of Michigan Consumer Sentiment Index for July, due later in the day.
Risk aversion intensified after the United States launched a sixth consecutive day of military strikes against Iran. Authorities in Bandar Abbas reported damage to civilian infrastructure, including electricity facilities and a railway station, adding to concerns over a widening regional conflict.
The US Central Command (CENTCOM) stated that the latest operations were aimed at further weakening Iran’s military capabilities and confirmed that naval forces had boarded a vessel as part of efforts to enforce the blockade around the strategic waterway. Earlier this week, President Donald Trump warned that Iranian bridges and power infrastructure could become targets unless Tehran returned to negotiations. The escalating conflict has increased demand for traditional safe-haven assets, providing additional support for the US Dollar against Sterling.
Meanwhile, recent US inflation figures have offered mixed signals. Consumer price inflation eased in June, while producer prices also declined, reinforcing expectations that inflationary pressures are moderating. Even so, traders continue to assign roughly a 55% probability to a Federal Reserve interest rate hike in September, according to the CME FedWatch Tool.
In the UK, Bank of England Governor Andrew Bailey acknowledged concerns over the renewed hostilities between the US and Iran but said the conflict has not materially altered the country’s inflation outlook. Markets continue to expect the BoE to raise interest rates at its November meeting, with another increase largely priced in by April 2027, according to Reuters.
The U.S. Dollar Index remains under pressure as cooling inflation signals reduce expectations of additional Fed rate hikes. However, concerns over energy-driven price pressures and rising tensions between the United States and Iran help cushion the Greenback’s downside. Market participants now await upcoming U.S. economic releases for fresh direction amid mixed fundamental signals.
The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, traded in a narrow range near 100.50 during Thursday’s Asian session, hovering close to the almost four-week low reached the previous day. While declining expectations of further Federal Reserve rate hikes continue to weigh on the dollar, concerns over energy-driven inflation and rising geopolitical tensions between the United States and Iran are helping to limit downside pressure.
Fresh economic data released on Wednesday showed that the US Producer Price Index (PPI) fell 0.3% in June, following a revised 0.6% increase in the previous month. The weaker PPI reading came after Tuesday’s softer-than-expected Consumer Price Index (CPI) report, reinforcing expectations that inflationary pressures are easing. As a result, investors have become less concerned that the Federal Reserve will need to maintain higher interest rates for an extended period, creating a bearish backdrop for the US dollar in the near term.
Geopolitical developments, however, continue to provide some support for the Greenback. Tensions between the United States and Iran have intensified significantly this week, with both countries carrying out additional military operations. On Wednesday, US forces conducted airstrikes targeting Iranian missile and drone facilities, while Tehran responded with retaliatory attacks against US-linked military assets across the region, signaling a worsening conflict.
US President Donald Trump further heightened tensions by warning that key Iranian infrastructure, including power stations and bridges, could become targets if hostilities escalate further. In addition, a US aircraft reportedly engaged an empty oil tanker attempting to breach the naval blockade around Iranian ports. At the same time, Iran has effectively restricted access through the Strait of Hormuz and threatened to disrupt shipping in the Bab el-Mandeb Strait.
These developments raise concerns about global trade flows and energy supplies, helping to keep oil prices elevated and maintaining a geopolitical risk premium in financial markets. Furthermore, market expectations for at least one additional 25-basis-point Federal Reserve rate hike remain intact, discouraging traders from aggressively selling the dollar. Investors are now awaiting upcoming US economic data releases for clearer direction on monetary policy and the next move in the currency markets.
The US Dollar Index trades lower against its major counterparts as markets scale back expectations for a more hawkish Federal Reserve.
US inflation softened in June, with both headline and core CPI easing to 3.5% and 2.6% year-over-year, respectively.
Fed Chair Kevin Warsh reiterated that the central bank remains firmly committed to bringing inflation under control, emphasizing zero tolerance for persistently elevated price pressures.
The US Dollar (USD) weakens against its major peers as investors scale back expectations for further Federal Reserve (Fed) rate hikes this year after softer-than-anticipated US inflation data for June. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, is trading around 100.80, down roughly 0.12% on the day.
Data released by the US Bureau of Labor Statistics (BLS) on Tuesday showed headline Consumer Price Index (CPI) inflation eased to 3.5% year-over-year in June from 4.2% in May, coming in below the market forecast of 3.8%. Meanwhile, core CPI, which strips out food and energy prices, rose 2.6% annually, undershooting both the 2.8% consensus estimate and May’s 2.9% reading.
Following the inflation report, market expectations for another Fed rate increase this month dropped sharply. According to the CME FedWatch Tool, the probability of a rate hike has fallen to 16.6%, down from 41.7% a day earlier.
Despite the softer inflation figures, Fed Chair Kevin Warsh maintained a firm stance on price stability during his congressional testimony on Tuesday, stressing that policymakers have “no tolerance for persistently elevated inflation.” He added that if monetary policy remains on the right path, the inflation surge seen over the past five years will eventually become a thing of the past.
Market participants now await the release of June’s US Producer Price Index (PPI), scheduled for 12:30 GMT, for additional insight into wholesale inflation trends and the Fed’s policy outlook.
Meanwhile, rising tensions between the United States and Iran could continue to support demand for the Greenback, as investors seek the safety of the world’s reserve currency amid growing geopolitical uncertainty.
GBP/USD gathers strength to near 1.3360 in Tuesday’s Asian session.
Renewed US strikes on Iran and fears over Strait of Hormuz shipping might cap the upside for the pair.
BoE’s Pill said interest rates are likely to rise to keep inflation in check.
The GBP/USD pair remains on the front foot, trading near 1.3360 during Tuesday’s Asian session. Even so, gains in the pair may be restrained as investors monitor mounting geopolitical tensions between the United States and Iran. Market participants are also turning their attention to the release of the US June Consumer Price Index (CPI) later in the day.
According to Reuters, US President Donald Trump announced on Monday that Washington had reinstated a naval blockade on Iran and would keep the Strait of Hormuz open through a fee-based arrangement following renewed missile and drone exchanges. The US military also confirmed fresh strikes against Iranian military facilities, noting that more than 50,000 US troops are currently stationed across the Middle East.
On Tuesday, Iran’s Islamic Revolutionary Guards Corps (IRGC) warned that any cooperation with what it described as the “aggressor enemy” in the Strait of Hormuz would postpone the waterway’s reopening and could trigger a global energy crisis. Heightened fears of a broader US-Iran conflict may continue to support demand for the safe-haven US Dollar (USD), limiting further upside in GBP/USD.
Meanwhile, expectations have grown that the Bank of England (BoE) may need to raise interest rates later this year to contain persistent inflation. BoE Chief Economist Huw Pill stated that tighter monetary policy is likely to be required to prevent inflationary pressures from becoming deeply embedded.
The US Dollar Index (DXY) moved higher as investors sought the safety of the US dollar amid escalating geopolitical tensions in the Middle East. Tehran has rejected further negotiations, insisting that Washington first fulfill earlier commitments regarding transit security and Iranian oil exports. Meanwhile, market participants continue to anticipate one final interest-rate hike from the Federal Reserve before the end of the year, providing additional support for the greenback.
The US Dollar Index (DXY), which tracks the US Dollar against a basket of six major currencies, extended its gains for a second consecutive session, hovering around 101.10 during Monday’s Asian trading hours.
The Greenback continued to attract safe-haven flows as geopolitical tensions in the Middle East intensified. According to Bloomberg, the US Central Command (CENTCOM) carried out additional strikes on Sunday aimed at reducing Iran’s ability to threaten civilian vessels transiting the strategic waterway.
Reuters reported that US forces have struck more than 300 Iranian targets over the past three days, including approximately 140 targets on Saturday alone, while Washington and Tehran offered conflicting assessments regarding the status of maritime traffic through the strait. The latest escalation has further diminished prospects for diplomatic progress, with Tehran insisting that the US must first honor previous commitments related to shipping security and the normalization of Iranian oil exports before negotiations can move forward.
The US Dollar also found support from rising concerns that the intensifying US-Iran conflict could drive energy prices higher, fueling inflationary pressures and potentially keeping Federal Reserve policy restrictive for longer. Investors are now focused on Tuesday’s release of the US Consumer Price Index (CPI) report for fresh signals on the Fed’s policy path. Economists expect headline CPI to decline by 0.1% month-over-month in June, while core CPI is forecast to increase by 0.3%.
Market participants continue to price in one additional Federal Reserve rate hike before year-end. Attention will also turn to Fed Chair Kevin Warsh, who is scheduled to make his first official appearance before Congress on Tuesday, with traders looking for further guidance on the outlook for monetary policy.
Natural gas came under strong selling pressure during the week, with prices breaking below the key $3.00 level on Friday. While this move points to continued bearish momentum in the near term, the scope for further declines may be relatively limited.
Seasonal patterns typically keep the natural gas market confined within a broad trading range during this period of the year. Although the overall bias tends to remain slightly negative, any upward moves should still be approached cautiously due to soft demand conditions. Unless unusually high temperatures trigger a surge in electricity consumption, demand for natural gas is unlikely to strengthen significantly.
As the primary heating season remains several months away in the United States, the market lacks a major catalyst for sustained gains. Consequently, natural gas prices are likely to remain range-bound for the time being, with traders awaiting stronger seasonal demand later in the year.
WTI Crude Oil
WTI crude oil posted a modest gain over the week, although much of the earlier strength was driven by market reactions to U.S. strikes on Iran. Since then, a large portion of those gains has been erased, indicating that the market remains uncertain about its next directional move.
At present, crude oil appears to be settling into a typical summer trading range as traders assess geopolitical developments alongside broader supply and demand dynamics. The $68 level may emerge as an important support zone, potentially providing a floor for prices if selling pressure persists.
For now, the market seems more likely to consolidate than trend decisively in either direction. A period of sideways trading over the next week or two could help establish a clearer range before the next significant move develops.
Gold
Gold prices spent much of the week under pressure, but the key development was the market’s successful defense of the $4,000 level. The strong rebound from this area reinforces its importance as a major support zone and suggests that buyers remain active on dips.
While the recovery is encouraging for bullish sentiment, it remains uncertain whether the upward momentum can be sustained in the near term. Traders will likely continue to monitor broader macroeconomic factors, particularly movements in the U.S. dollar, for clues about gold’s next direction.
A weaker dollar could provide additional support for the precious metal by improving its appeal to international investors. Conversely, renewed strength in the greenback may limit further gains and keep gold trading within its recent range.
EUR/USD
The euro ended the week lower but managed to hold above the important 1.1400 support area, suggesting that buyers are still defending this level despite recent weakness. While the overall tone remains somewhat bearish, the next few trading sessions should provide greater clarity regarding the pair’s near-term direction.
Market participants will be closely watching price action around current levels to determine whether support can continue to hold. A sustained move below 1.1400 would likely reinforce downside pressure and shift attention toward lower technical targets.
Should the pair break decisively beneath support, the 1.1200 region could become the next key area of interest. This level aligns with the projected target from a bearish flag formation on the daily chart and is further supported by the presence of the 200-week Exponential Moving Average, making it a potentially significant zone for buyers to re-enter the market.
USD/CAD
The U.S. dollar traded in a relatively choppy manner against the Canadian dollar throughout the week, reflecting ongoing uncertainty surrounding Canada’s economic outlook and broader market sentiment. Price action remains confined within a historically significant area that previously served as the starting point of a major breakdown in early 2025, which helps explain the market’s current lack of directional conviction.
Given the technical backdrop, a near-term pullback would not be surprising. Even if prices retreat, demand could emerge on dips, particularly as the pair approaches lower support levels where buyers have previously shown interest.
The 1.4000 region remains a key support zone and may continue to act as a solid floor due to the substantial amount of historical trading activity associated with it. On the upside, a move toward 1.4500 remains possible, although the market will likely require a stronger fundamental or macroeconomic catalyst before such a rally can gain momentum.
USD/MXN
USD/MXN spent much of the week moving sideways, with the pair continuing to hover around the 17.50 level. This area is particularly noteworthy from a technical perspective, as it previously acted as a significant resistance zone and may now play an important role in determining the market’s next directional move.
Traders will be watching closely to see whether the pair can establish momentum above current levels. A breakout beyond this week’s high could open the door for a move toward the 18.00 mark, which represents the next major psychological resistance level.
Despite this potential upside scenario, the broader fundamental backdrop continues to favor the Mexican peso due to the interest rate differential between the two countries. As a result, the longer-term bias may still lean toward USD/MXN weakness. However, clearer bearish price signals would likely be needed before a convincing short-selling opportunity emerges.
Silver
Silver experienced a sharp decline during the week, briefly falling below the critical $60 level before recovering and attracting renewed buying interest. Despite the rebound, the metal remains in a vulnerable position, with the $60 area continuing to serve as a key battleground between buyers and sellers.
While silver has managed to stabilize for the moment, the broader outlook remains cautious. Sustained upside momentum may prove difficult unless supported by a more favorable macroeconomic environment, particularly through lower U.S. interest rates or a weakening U.S. dollar.
From a technical standpoint, the $57 level represents an important support zone. A decisive break below this area could trigger additional selling pressure and pave the way for a deeper decline toward the $50 mark. Until stronger bullish catalysts emerge, traders are likely to remain focused on downside risks and broader market conditions.
GBP/USD
The British pound advanced over the course of the week, although gains remained capped near the 1.3450 region. This area continues to act as a significant resistance zone, with selling pressure likely extending toward the psychologically important 1.3500 level.
While the broader trend has shown signs of resilience, the pair has yet to generate enough momentum to break convincingly above resistance. As a result, traders may remain cautious until a clearer directional signal emerges.
For the time being, GBP/USD appears likely to remain within a broader trading range. In this environment, short-term rallies that begin to lose momentum could present opportunities for sellers, particularly if resistance levels continue to hold and market conditions fail to support a sustained breakout.
Escalating tensions between the US and Iran drove oil prices higher, reigniting inflation worries and dampening investor sentiment.
A stronger US Dollar continues to weigh on EUR/USD, with geopolitical uncertainty taking precedence over economic fundamentals.
Investors are looking ahead to the Fed minutes for policy clues, although developments in the Middle East remain the primary catalyst for market direction.
After a turbulent first half of the year marked by the US-Israel conflict with Iran and President Trump’s frequent policy reversals, investors were hoping for a quieter period as the summer holiday season approached. Instead, geopolitical tensions appear to be resurfacing.
Oil prices have climbed sharply over the past few sessions, recovering to levels last seen before the conflict. While Trump may later attempt to ease market concerns with softer rhetoric, the immediate reaction has been a renewed focus on geopolitical risks.
My view is that Trump is unlikely to favor a major escalation, which could limit the magnitude of any oil rally compared with the dramatic price swings witnessed during the peak of the conflict earlier this year. However, his recent remarks have undeniably heightened concerns over potential supply disruptions from Iran and the broader Middle East. In particular, markets are once again watching the possibility of Tehran restricting traffic through the Strait of Hormuz, a critical global energy chokepoint.
The coming days should provide greater clarity on how the situation develops, but for now, there is a growing risk that markets could find themselves facing a familiar geopolitical backdrop once again.
Fed Minutes Likely to Take a Back Seat as Geopolitical Risks Return
Markets initially appeared to shrug off the renewed tensions between the US and Iran earlier this week, but sentiment has shifted noticeably. As geopolitical concerns intensify, investors are likely to pay less attention to incoming macroeconomic data. While the minutes from the Federal Reserve’s June meeting are due later today and are expected to reaffirm a hawkish policy stance, supporting the US Dollar, the market’s primary focus has returned to oil prices and their implications for inflation and interest-rate expectations.
Investor sentiment deteriorated after President Trump’s remarks at the NATO summit unsettled financial markets, prompting a broad risk-off move that weighed on European equities and US stock futures. Addressing reporters, Trump stated that the memorandum of understanding with Iran was no longer valid and referred to Iranian leaders in highly critical terms, signaling a tougher stance toward Tehran.
The change in rhetoric has significantly reduced hopes for renewed diplomatic engagement. Only a few days ago, expectations were growing that both Washington and Tehran would maintain restraint ahead of another round of negotiations. Instead, concerns over renewed confrontation have resurfaced, placing geopolitical risks back at the forefront of market attention.
Euro Lacks Clear Catalysts Amid Mixed Fundamental Signals
The euro continues to face a challenging outlook as conflicting economic and geopolitical factors shape market sentiment. On the positive side, Germany’s industrial production data surprised to the upside, with output increasing by 0.9% in May, supported by stronger activity in the automotive and construction sectors.
The data suggests that Europe’s industrial economy has remained relatively resilient despite recent geopolitical uncertainty. However, the renewed escalation of tensions in the Middle East threatens to push energy costs higher once again, potentially weighing on economic growth across the region. At the same time, investors remain divided over the European Central Bank’s policy path, with expectations for a September rate hike no longer representing the market’s base-case scenario.
Nevertheless, ECB policymakers are unlikely to signal an end to the inflation fight while geopolitical risks remain elevated. Underlying price pressures continue to run above desired levels, prompting officials to maintain a cautious and data-dependent stance. Comments from senior ECB members this week may reinforce that message, providing intermittent support for the euro. Even so, such support could prove limited as the US Dollar continues to benefit from safe-haven demand and expectations that US interest rates will remain elevated for longer.
EUR/USD Technical Analysis
From a technical standpoint, EUR/USD remains trapped in a consolidation phase, although the near-term bias appears to favor the downside. The pair is currently hovering around the key 1.1400 support zone. A sustained break below this level could open the door for a deeper pullback toward the 1.1300 region.
On the upside, resistance is initially seen near 1.1450. If buyers manage to push the pair above this barrier, attention would shift to the psychological 1.1500 level, followed by the next major resistance around 1.1575.
At present, a stronger bullish move in EUR/USD would likely require a meaningful change in expectations surrounding Federal Reserve policy or a notable weakening in US economic conditions. With neither scenario appearing likely in the near term, investors continue to favor the US Dollar, supported by its yield advantage and renewed geopolitical concerns stemming from rising US-Iran tensions, which have also helped sustain higher oil prices.
EUR/USD posts modest gains, hovering around the 1.1430 level during Friday’s early Asian trading session.
ECB meeting accounts revealed that policymakers expect inflationary pressures to remain elevated despite markets pricing in nearly three additional rate hikes.
A US official reaffirmed that Washington remains committed to pursuing a diplomatic resolution with Iran.
The EUR/USD pair edges higher to around 1.1430 during Friday’s early Asian session, supported by a weaker US Dollar (USD). The Euro finds support as investors increase expectations for further European Central Bank (ECB) tightening amid persistent inflation concerns and uncertainty surrounding the Middle East conflict.
Minutes from the ECB’s latest meeting released on Thursday showed that policymakers were presented with forecasts indicating inflation could remain above the central bank’s target through next year, even with nearly three additional rate increases. After raising interest rates in June, the ECB is widely expected to deliver two more hikes over the coming year as it seeks to contain inflationary pressures, including those stemming from higher energy costs linked to the Iran conflict.
Market participants have recently strengthened their bets on additional ECB rate hikes amid growing doubts over the prospects for a lasting agreement between the United States and Iran to end the war. These expectations continue to lend support to the common currency.
Investors will remain focused on developments in the US-Iran conflict, as any escalation in tensions could increase demand for safe-haven assets and weigh on EUR/USD. Nevertheless, a US official stated on Thursday that Washington remains committed to the memorandum of understanding with Iran, despite President Donald Trump’s remarks earlier this week that the framework agreement aimed at ending the conflict was “over.”
The US Dollar Index remains under pressure after the FOMC Minutes failed to deliver a more hawkish signal. Still, expectations for a Fed rate hike later this year and renewed tensions between the US and Iran are helping to limit downside momentum.
The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, remains under mild selling pressure for a second consecutive day. However, the decline has been limited, with the index trading within Wednesday’s range during Thursday’s Asian session and hovering just below the 101.00 level, down roughly 0.1% on the day.
Demand for the US Dollar has softened following the release of the latest FOMC Minutes, which failed to deliver a significantly more hawkish policy signal. The minutes from the June 16–17 meeting showed policymakers remained divided on the future path of interest rates, with many officials suggesting the federal funds rate could finish the year at or slightly below its current level.
Despite this, Federal Reserve officials continued to highlight persistent upside inflation risks, indicating that additional policy tightening may still be necessary to bring inflation back toward the 2% target. Markets continue to price in approximately a 70% probability of a 25-basis-point rate increase in September. At the same time, renewed geopolitical tensions between the US and Iran have provided support for the Greenback by reinforcing safe-haven demand and fueling expectations of higher inflation.
The latest escalation in the Middle East followed fresh US military strikes against Iran in response to attacks on commercial shipping in the Strait of Hormuz. Tehran retaliated with ongoing attacks targeting US military facilities and assets in Bahrain and Kuwait. Further adding to uncertainty, US President Donald Trump stated on Wednesday that the memorandum of understanding intended to ease regional tensions had effectively collapsed. Against this backdrop, traders are reluctant to initiate aggressive bearish positions on the Dollar ahead of the release of US Weekly Jobless Claims data, which could offer fresh direction for the market.
EUR/USD remains on the defensive, struggling to attract meaningful buying interest as escalating tensions involving Iran continue to fuel demand for the safe-haven US Dollar. Meanwhile, the latest surge in crude oil prices has reignited inflation concerns, prompting markets to price in a greater likelihood of further Fed tightening and providing additional support to the Greenback. Investors now await the release of the June FOMC Minutes for fresh clues on the Federal Reserve’s policy outlook and the pair’s next directional move.
The EUR/USD pair manages to hold above the 1.1400 level during Wednesday’s Asian session, though upside momentum remains limited as renewed tensions between the United States and Iran dampen risk appetite. Market participants also prefer to stay on the sidelines ahead of the release of the FOMC Minutes, seeking additional clarity on the Federal Reserve’s future policy direction before taking fresh positions.
Geopolitical concerns intensified after the US launched a fresh round of strikes against Iran on Tuesday in response to reported attacks on three oil tankers transiting the Strait of Hormuz, raising fears that the fragile ceasefire could unravel. The escalation prompted investors to seek safety in the US Dollar, with the resulting risk premium providing support for the Greenback and weighing on the EUR/USD pair.
Adding to the USD’s strength, Washington reportedly revoked a major exemption that had enabled Iran to continue selling oil on global markets. The move fueled a sharp rise in crude oil prices and reignited concerns over energy-driven inflation. As a result, traders increased expectations that the Fed could deliver at least one additional rate hike before year-end, pushing US Treasury yields higher and offering further support to the US currency.
Despite the favorable backdrop, USD bulls remain cautious ahead of the publication of the Minutes from the Fed’s June 16–17 policy meeting later in the day. Investors will closely examine the document for fresh signals regarding the central bank’s monetary policy outlook, which could shape near-term USD sentiment and determine the next directional move for EUR/USD.
The U.S. Dollar Index remains below 101.00 as easing expectations of Fed rate hikes offset concerns over Hormuz-related risks.
The U.S. Dollar Index (DXY) continues to trade sideways on Tuesday, lacking sufficient momentum to break out of its recent range.
Fresh tensions in the Strait of Hormuz provide support for the safe-haven U.S. dollar, helping limit downside pressure.
However, fading expectations of additional Federal Reserve rate hikes keep bullish sentiment in check and restrict further gains in the greenback.
The U.S. Dollar Index (DXY) remained range-bound below 101.00 on Tuesday, extending its consolidation for a third consecutive session as geopolitical risks and monetary policy expectations pulled the dollar in opposite directions.
Renewed tensions between the U.S. and Iran, particularly in the strategically vital Strait of Hormuz, provided support for the safe-haven greenback. Reports of an oil tanker being struck in the waterway and Iran’s efforts to strengthen its control over the strait have raised concerns over the durability of the 60-day ceasefire agreement. The resulting uptick in crude oil prices has revived inflation worries, lending additional support to the U.S. dollar.
However, upside momentum remains limited as expectations for further Federal Reserve tightening continue to fade. Following June’s softer-than-expected Nonfarm Payrolls report, markets scaled back their outlook for Fed rate increases in 2026 from two hikes to between zero and one, reducing support for the dollar.
Adding to the cautious tone, the U.S. ISM Services PMI eased to 54.0 in June from 54.5 previously, meeting forecasts but offering little incentive for fresh USD buying. As a result, traders remain hesitant to extend the dollar’s rebound from the 97.40–97.45 support zone seen earlier this year.
Attention now turns to Wednesday’s FOMC Minutes, which could provide clearer guidance on the Fed’s policy outlook and determine the DXY’s next directional move.
US Dollar: Investor positioning continues to provide solid support into year-end – NBC
According to analysts Stéfane Marion and Kyle Dahms of National Bank of Canada, the US Dollar remains near its 2026 peak, supported by persistent inflation in the United States and a widening interest-rate advantage over other major economies. While these factors are likely to keep the greenback well supported in the near term, the analysts are increasingly cautious about the sustainability of the rally beyond the third quarter.
The dollar has strengthened against all major currencies over the past month as markets reassessed the outlook for US interest rates, reinforcing the currency’s yield advantage. However, NBC argues that expectations for imminent Federal Reserve tightening may be overdone.
June’s labor-market data painted a softer picture than headline sentiment suggests. Nonfarm payrolls increased by just 57,000, missing market expectations, while previous months’ figures were revised lower by a combined 74,000 jobs. Meanwhile, the household survey showed a decline of 507,000 employed workers and a notable drop in full-time employment, pointing to underlying weakness in the labor market.
NBC notes that speculative positioning has become increasingly skewed toward a stronger dollar, indicating that much of the bullish narrative may already be priced in. As a result, the USD could become more vulnerable to weaker inflation readings, further signs of labor-market cooling, or any scaling back of expectations for future Fed rate hikes.
The bank therefore expects the US Dollar to remain supported in the short term, but warns that slowing job growth and crowded market positioning make it difficult to justify extending the recent rally far beyond Q3. This view aligns with the gap between the Federal Reserve’s projections and private-sector forecasts: while roughly half of FOMC members still anticipate higher rates this year, only a small minority of economists expect additional tightening. NBC shares that skepticism, arguing that although inflation remains elevated enough to discourage rate cuts, labor-market conditions are soft enough to allow policymakers to remain patient before considering further hikes.
NBC’s broad USD index forecast reflects this outlook, with the index expected to gradually ease from 120.8 currently to 115.9 by Q2 2027, signaling a moderation rather than a reversal of dollar strength.
Bitcoin showed a modest recovery over the week, finding support around the $60,000 level and signaling a potential stabilization after its recent decline. However, caution remains warranted, as the cryptocurrency has experienced significant downward pressure and market sentiment is still fragile.
Looking ahead, any upward movement is likely to face resistance from sellers until Bitcoin can establish itself firmly above the $65,000 mark. On the downside, a break below the low of the current weekly candle could trigger renewed bearish momentum, increasing the likelihood of a move toward the $50,000 level.
EUR/USD
EUR/USD traded within a relatively narrow range throughout the week, with the 1.14 level continuing to serve as an important support zone for market participants. Sentiment shifted slightly following a weaker-than-expected U.S. Non-Farm Payrolls report, which prompted investors to scale back expectations of further interest rate hikes by the Federal Reserve.
Despite this development, the broader outlook remains uncertain. A break below the previous week’s low could accelerate bearish momentum and pave the way for a decline toward the 1.12 level. On the upside, any recovery attempts should be approached cautiously until the pair can convincingly move above 1.15, ideally supported by a daily close above that threshold.
NZD/USD
NZD/USD posted solid gains for most of the week, although the pair began to lose momentum on Friday, suggesting that bullish sentiment may be fading. If the U.S. dollar strengthens broadly in the coming sessions, the New Zealand dollar could be among the currencies most vulnerable to a reversal.
The pair has remained trapped within a long-standing trading range, while New Zealand’s monetary policy outlook differs from that of several other major economies. The central bank has maintained a relatively less hawkish stance, which could limit the kiwi’s upside potential. Given these factors, bearish opportunities may emerge if further signs of weakness develop. Additionally, Friday’s price action resembles a shooting star candlestick pattern, often viewed as a warning of potential downside pressure, making it a technical signal worth monitoring closely.
USD/CAD
USD/CAD traded largely sideways throughout the week, reflecting a period of consolidation after recent moves. While the pair may appear somewhat stretched in the short term, price action is likely to remain volatile given the close economic relationship between the United States and Canada.
Although the latest U.S. employment data came in weaker than expected, broader fundamentals continue to support the U.S. dollar. At the same time, concerns over the Canadian economy’s performance may limit the Canadian dollar’s strength. As a result, any near-term pullback in USD/CAD could present buying opportunities, particularly if the pair declines toward the key 1.40 support area, where demand may re-emerge.
GBP/USD
GBP/USD delivered a strong performance during the week, advancing above the 1.33 level and testing the 50-week Exponential Moving Average (EMA). A decisive break above this week’s high, near 1.34, could reinforce bullish momentum and pave the way for a move toward the 1.35 area.
The pair has spent an extended period trading within a range, making the recent recovery a relatively natural development. The British pound has also demonstrated greater resilience against the U.S. dollar compared with several other major currencies. Should the U.S. dollar come under renewed selling pressure, sterling could emerge as one of the primary beneficiaries. Conversely, even if the dollar regains strength, the current market structure offers little incentive for a bearish outlook on GBP/USD, as the pair continues to show underlying support and positive momentum.
Silver
Silver experienced considerable volatility throughout the week, with price action remaining choppy and directionless. The $60 level continues to act as a key psychological resistance zone, creating a significant hurdle for any sustained upward movement.
Despite periodic rebounds, the broader technical picture remains cautious following the recent formation of a new swing low. This suggests that rallies may continue to face selling pressure, particularly if bullish momentum begins to fade. From a technical perspective, the 50-week Exponential Moving Average (EMA), currently near $64.36, represents an important resistance area and may serve as the primary upside barrier in the near term. Until silver can break convincingly above this level, the market is likely to remain vulnerable to further downside pressure.
Gold
Gold has shown signs of improvement over the past several weeks, with prices recovering and attempting to build a stronger foundation. The market is now approaching the 50-week Exponential Moving Average (EMA), a key technical level that could determine the next major move. A successful breakout above this resistance may strengthen bullish momentum and open the door for a rally toward the $4,400 level.
On the downside, a decline below the $3,900 support zone would likely weaken the outlook and increase the risk of a deeper correction toward $3,500. Overall, gold appears to be in the process of establishing a long-term bottom, although confirmation is still needed. Traders should continue to monitor the performance of the U.S. dollar, as further dollar weakness could provide additional support for gold prices and enhance the prospects for a sustained recovery.
The Nasdaq 100
The Nasdaq 100 advanced for most of the week, continuing to reflect the market’s underlying strength. However, trading activity was shortened due to the market closure on Friday, which slightly distorts the weekly candlestick. Additionally, Thursday’s session was heavily influenced by the release of the U.S. Non-Farm Payrolls report. While the data came in weaker than expected, the impact does not appear severe enough to significantly alter the broader market outlook.
Looking ahead, the index may enter a period of consolidation following its substantial gains over the past several months. Rather than expecting an immediate continuation of the rally, a sideways trading phase could help absorb recent gains and establish a stronger foundation for future advances. Within this context, short-term pullbacks may present attractive buying opportunities, as the longer-term trend remains constructive and investor sentiment continues to favor equities.
The US Dollar edged lower toward the 100.80 level as traders slightly scaled back expectations for a hawkish Federal Reserve.
The US economy added 57K new jobs in June, falling short of the 110K forecast.
Investors are now turning their attention to the US ISM Services PMI report, scheduled for release on Monday.
The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, edged slightly lower to around 100.80 during Friday’s Asian session. The US Dollar faced renewed pressure after traders scaled back expectations for a hawkish Federal Reserve following the release of June’s United States Nonfarm Payrolls (NFP) report on Thursday.
Data from the CME FedWatch Tool showed that the probability of the Fed delivering at least one interest rate hike at the September meeting fell to 53.2%, down from nearly 64% on Wednesday.
Market participants reduced hawkish Fed expectations after the June NFP figures came in well below forecasts. The US economy added 57K jobs during the month, significantly missing the 110K estimate. In addition, May’s payrolls figure was revised lower to 129K from the previously reported 172K. Despite the weaker hiring data, the Unemployment Rate declined to 4.2%, compared with expectations and the prior reading of 4.3%.
Meanwhile, Average Hourly Earnings — a key indicator of wage growth — increased 3.5% year-over-year, matching market expectations and improving from the previous 3.4% reading.
Looking ahead, investors will closely monitor the US ISM Services PMI report for June, due on Monday. The data is expected to be a key driver for the US Dollar, as the services sector represents roughly two-thirds of the US economy.
The US Dollar Index (DXY) edged lower to around 101.20 during Thursday’s early European trading session. Despite the pullback, the near-term outlook remains constructive, supported by bullish momentum signals from the RSI.
From a technical perspective, 101.80 serves as the immediate resistance level. A decisive break above this barrier could reinforce the bullish bias, while initial support is seen at 101.05, the first downside target should selling pressure intensify.
The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of six major currencies, traded around 101.20 during Thursday’s early European session. The greenback softened as investors adopted a cautious stance ahead of the release of the closely watched June US employment report, the key macroeconomic event on Thursday’s calendar.
Economists expect the Nonfarm Payrolls (NFP) report to show that the US economy added 110,000 jobs in June, while the unemployment rate is forecast to remain unchanged at 4.3%. A weaker-than-anticipated labor market reading could weigh on the US Dollar and increase expectations for Federal Reserve policy easing.
However, the downside may be limited if the data surprises to the upside. According to Akihiko Yokoo, Senior Analyst at Mitsubishi UFJ Bank, stronger-than-expected payroll figures could provide fresh support for the greenback and trigger a renewed upward move in the currency. He noted that a positive labor market surprise could encourage a rebound in the US Dollar as market participants reassess the outlook for US interest rates.
Technical Analysis
From a technical standpoint, the US Dollar Index (DXY) maintains a constructive near-term outlook. On the daily chart, the index continues to trade above both its 20-day Bollinger Band midpoint and the 100-day moving average, signaling that the broader bullish trend remains intact. Meanwhile, the 14-day Relative Strength Index (RSI) is hovering around 65, indicating solid upward momentum without yet entering overbought territory.
On the upside, the first key resistance level is the June 24 high at 101.80. A sustained break above this barrier could open the door for a move toward the upper Bollinger Band near 102.00, where bullish momentum may begin to encounter profit-taking pressure.
On the downside, initial support is located at the June 30 low of 101.05. Further weakness could expose the Bollinger Band midpoint around 100.65, followed by stronger support near the lower Bollinger Band at 99.25 and the 100-day moving average at 99.20. A deeper decline toward this support cluster would be required to challenge the current bullish structure and shift the near-term outlook to a more neutral stance.
We expect ECB speakers at Sintra to broadly reinforce market expectations of another rate hike this year, following President Lagarde’s relatively balanced opening remarks. Meanwhile, the US dollar has continued to give back recent gains, with markets now turning their attention to upcoming data releases and Fed-related commentary, particularly Warsh’s speech at Sintra, which is expected to carry a hawkish tone. USD/JPY remains in the intervention zone, keeping Japanese authorities on alert.
USD: Losing Momentum Ahead of Key Data and Warsh
The dollar has softened against most G10 currencies, largely driven by improving risk sentiment as equities recover. Sentiment has also been supported by reports of renewed US–Iran negotiations despite recent geopolitical tensions. However, this risk-positive environment is weighing on traditional commodity-linked currencies such as the AUD, CAD, and NOK, as well as the yen. Even so, the recent decline in oil prices appears overstretched, and we still expect AUD and NOK to perform better into the summer, supported by carry and a more constructive energy outlook.
Attention now shifts to US data. We expect consumer confidence to come in above consensus at 97.5 versus 94.5, consistent with resilient US consumption. JOLTS job openings are forecast to edge lower to 7.25m (consensus 7.3m), which would still be consistent with a broadly healthy labor market given the vacancies-to-unemployment ratio remains above 1.0.
Overall, today’s data should be modestly supportive or neutral for the dollar. However, bullish momentum has clearly faded, and improved risk appetite limits upside potential for now, with markets instead looking to Warsh’s Sintra remarks and upcoming jobs data for clearer direction.
EUR: Sintra Likely to Be Uneventful for the Euro
Lagarde’s opening remarks suggested no meaningful shift in ECB communication strategy, reinforcing the view that Sintra is unlikely to trigger a repricing of policy expectations. She acknowledged a less urgent policy backdrop compared to 2022–2023 while noting continued economic resilience.
Nothing in this messaging is likely to materially alter expectations for another rate hike. We expect other ECB speakers to broadly support this view, even as recent sentiment data points to easing inflation pressures.
Upcoming eurozone CPI releases remain in focus. Spain surprised to the upside at 3.2%, France is expected to moderate to 2.0%, and Germany is forecast to hold steady at 2.6%. Overall, these figures are unlikely to significantly shift EUR direction.
We see downside risks for EUR/USD ahead of US data and Warsh’s speech, but continue to expect stabilization around or slightly above 1.140 rather than a retest of recent lows.
JPY: Approaching Intervention Territory
USD/JPY continues to trend higher, raising the risk of Japanese FX intervention. Authorities previously intervened heavily near 160, spending roughly $70bn when the pair moved above that level. The 162 area is widely viewed as a potential next line in the sand.
However, policymakers may prefer to wait for thinner liquidity conditions or key event risks before acting, including US holidays and upcoming macro catalysts such as Warsh’s speech and the US jobs report.
There is also a possibility that intervention is delayed toward mid-July, following seasonal patterns seen last year. Still, intervention would likely only slow the trend rather than reverse it, unless accompanied by a shift in BoJ policy or a broader turn in the US dollar cycle later in the year.
Gold fell 12% in June, prompting questions over whether further downside is likely, while USD/JPY remains in focus amid intervention concerns.
Gold has rebounded above the 4,000 level but is still set to record a 12% monthly loss in June—its steepest decline since October 2008. The drop reflects a broader market shift away from geopolitical risk premiums and back toward concerns over elevated U.S. interest rates.
The metal is also heading for its first quarterly loss since 2024 and its largest three-month drop since Q2 2013.
The selloff has been driven by rising expectations that the Federal Reserve will continue tightening policy. After a hawkish FOMC meeting and persistently high Core PCE inflation at 3.4%, markets are now pricing in more than a 60% chance of a 25-basis-point rate hike in September, with up to three hikes still seen as possible this year.
These expectations have pushed the U.S. dollar to a 13-month high, while higher real yields have increased the opportunity cost of holding non-yielding assets like gold.
Together, a stronger dollar, rising real yields, and a hawkish Fed stance continue to pressure gold prices.
Market attention now shifts to Fed Chair Kevin Walsh’s remarks at the ECB Sintra Forum and Thursday’s U.S. non-farm payrolls report, which could offer further clues on the rate outlook and gold’s direction.
For a sustained recovery, gold would likely need lower real yields, a weaker dollar, or a reversal in hawkish Fed expectations—none of which currently appear imminent.
Gold Forecast – Technical Analysis
Gold has broken down from its symmetrical triangle formation and slipped below the 200-day simple moving average, hitting a low of 3,942—its weakest level since November.
The 50-day SMA has now crossed beneath the 200-day SMA, confirming a bearish “death cross” signal. Alongside an RSI reading below 50, technical indicators continue to point toward downside momentum.
On the downside, sellers may target 3,930—the November low—followed by 3,800. A break beneath that level could open the door toward the psychological support zone around 3,500.
On the upside, any recovery would first need to reclaim 4,100, which aligns with this week’s high and the March low. Beyond that, resistance is seen near a declining trendline around 4,300, followed by horizontal resistance at 4,350. A sustained move above this zone would bring the 200-day SMA near 4,500 back into focus.
USD/JPY
USD/JPY has surged to a 40-year high above 162, heightening concerns that Japanese authorities may intervene to support the yen.
The currency has weakened to levels last seen in 1986, increasing speculation that Tokyo could step into the market in the near term, even as the U.S. dollar has eased slightly from its 13-month peak.
The yen is down 2% in the second quarter, marking its fourth consecutive quarterly decline and the longest losing streak in four years, as the wide interest rate gap between the U.S. and Japan continues to weigh on the currency.
Finance Minister Satsuki Katayama has reiterated that authorities are prepared to act at any time if necessary. Historically, interventions have often occurred during periods of thin liquidity, and with a holiday-shortened trading week, conditions could be conducive to action.
The key market debate is increasingly shifting from whether intervention will occur to when it might happen. However, unless any intervention is supported by a narrowing U.S.-Japan yield differential, its impact is likely to be short-lived.
Previous interventions in late February and early May briefly strengthened the yen, but USD/JPY resumed its uptrend as markets quickly re-priced U.S. rate expectations. In that context, intervention has often been faded, as underlying macro forces remain unchanged.
The carry trade continues to be supported by the persistent yield advantage in the U.S., keeping upward pressure on USD/JPY.
Recent hawkish Federal Reserve signals and sticky Core PCE inflation at 3.4%, a three-year high, have led markets to price in around a 60% chance of a 25-basis-point rate hike in September, with expectations of up to three hikes this year.
Looking ahead, attention turns to Federal Reserve Chair Kevin Walsh’s remarks at the ECB Sintra Forum, alongside Thursday’s U.S. non-farm payrolls report. Ahead of that, U.S. consumer confidence and JOLTS job openings data will also be closely watched for further clues on the interest rate outlook.
USD/JPY Forecast – Technical Analysis
USD/JPY has broken above the upper boundary of its rising wedge pattern, extending gains to a new 40-year high at 162.40 and effectively invalidating the prior bearish reversal setup.
Momentum indicators show the RSI in overbought territory across multiple timeframes, suggesting the pair may pause for consolidation before attempting further upside.
On the bullish side, buyers are now eyeing a move toward 165, with the longer-term projection extending to 170 if momentum persists.
On the downside, initial support is seen at 160.20, followed by the key psychological level at 160.00. A break below that zone would expose the 50-day SMA near 159.50, with deeper support at 157.90, where the rising trendline aligns with horizontal support.
Gold prices remain steady near $4,015 during Wednesday’s early Asian trading session as investors monitor ongoing US-Iran negotiations. Market sentiment was influenced after US envoy Steve Witkoff and Jared Kushner met with Qatar’s prime minister on Tuesday to discuss diplomatic efforts between Washington and Tehran.
Traders are also turning their attention to key US labor market data due later this week, with the ADP Employment Change report and the closely watched Nonfarm Payrolls (NFP) release expected to provide fresh clues on the Federal Reserve’s policy outlook and the near-term direction of gold prices.
Gold prices (XAU/USD) remained largely unchanged near the $4,015 level during Wednesday’s early Asian session as investors assessed the outlook for potential US-Iran negotiations in Doha. Market participants remained cautious after conflicting statements from Washington and Tehran highlighted the uncertain nature of the temporary peace agreement reached earlier this month.
According to CNBC, US President Donald Trump stated on Tuesday that discussions between the two nations would take place in Qatar, adding that Iran had requested a meeting following the recent exchange of US airstrikes. However, an Iranian Foreign Ministry spokesperson reportedly rejected claims that talks were scheduled in the coming days.
US representatives Jared Kushner and Steve Witkoff arrived in Doha on Tuesday, where they were expected to meet with Qatar’s prime minister to discuss regional developments and ongoing diplomatic efforts involving Iran. Despite these engagements, no direct high-level talks between US and Iranian officials have been confirmed.
Progress toward a lasting diplomatic resolution could enhance demand for Gold as investors seek safe-haven assets amid geopolitical developments. Conversely, continued uncertainty surrounding the negotiations may fuel concerns about inflation and monetary policy, potentially increasing expectations for tighter interest rates. While Gold is widely viewed as a hedge against inflation, its lack of yield can make it less attractive in a higher-rate environment.
Attention now shifts to key US labor market releases, including the ADP employment report on Wednesday and the Nonfarm Payrolls (NFP) report on Thursday. Stronger-than-expected employment figures could reinforce expectations that the Federal Reserve will keep interest rates elevated for longer, supporting the US Dollar and potentially limiting upside momentum in Gold prices.
AUD/USD comes under renewed selling pressure on Wednesday as a combination of factors continues to support the US Dollar. Ongoing uncertainty surrounding Iran and growing expectations of further Fed rate hikes remain key tailwinds for the greenback. Meanwhile, the pair shows little reaction to China’s RatingDog Manufacturing PMI, which came in broadly in line with expectations.
AUD/USD failed to build on Tuesday’s rebound from the 0.6865 area, its lowest level in three months, and came under renewed selling pressure during Wednesday’s Asian session. The pair slipped back below 0.6900 and showed little reaction to China’s latest private manufacturing PMI data.
China’s RatingDog Manufacturing PMI eased to 51.7 in June from 52.2 in May, reinforcing concerns about slowing economic momentum. Combined with Tuesday’s official PMI figures, which highlighted weak domestic demand and subdued consumer spending, the data weighed on the Australian Dollar, which is often viewed as a proxy for China’s economic health. A modest recovery in the US Dollar further added to the pair’s downside pressure.
The Greenback continued to benefit from its safe-haven appeal amid uncertainty surrounding US-Iran negotiations and growing expectations that the Federal Reserve may need to raise interest rates further. Although US officials arrived in Qatar to discuss the implementation of a preliminary peace agreement, Iran’s reluctance to engage with US envoys has cast doubt on the prospects for a lasting resolution, keeping geopolitical risks elevated.
At the same time, stronger-than-expected US labor market data supported the USD. The JOLTS report showed job openings climbed to a two-year high of 7.594 million in May, underscoring continued labor market resilience. Combined with concerns that renewed tensions in the Middle East could reignite inflationary pressures, the data strengthened market expectations for additional Fed tightening.
Investors now await remarks from Fed Chairman Kevin Warsh at the ECB Forum in Sintra, alongside key US data releases including the ADP employment report and ISM Manufacturing PMI. Attention will then turn to Thursday’s closely watched Nonfarm Payrolls report, which could provide the next major catalyst for AUD/USD.
USD/JPY rallies to a fresh four-decade peak on Tuesday amid broad Yen weakness.
The widening US-Japan yield gap continues to weigh on the JPY and underpin the pair.
Renewed demand for the US Dollar, fueled by Iran-related tensions and expectations of further Fed tightening, adds to the upside momentum.
The USD/JPY pair extends its powerful rally above the key 162.00 mark, reaching a new 40-year high during Tuesday’s Asian trading session. Nonetheless, concerns over potential intervention from Japanese authorities continue to limit additional gains.
Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent recently agreed to coordinate on currency matters if required. In addition, Chief Cabinet Secretary Minoru Kihara reiterated last week that the government stands ready to respond to excessive foreign-exchange fluctuations. At the same time, traders remain cautious about adding fresh bearish positions on the Japanese Yen (JPY) following the Bank of Japan’s (BoJ) increasingly hawkish tone.
Minutes from the BoJ’s June policy meeting revealed that officials discussed rising inflation risks, with some members advocating a faster pace of rate hikes toward neutral levels. Growing evidence of stronger inflationary pressures in Japan further supports expectations for additional policy normalization. Even so, Japanese interest rates remain significantly below those in the US, preserving the attractiveness of carry trades that continue to weigh on the Yen.
On the other hand, uncertainty surrounding US-Iran diplomacy and expectations of further Federal Reserve (Fed) tightening are helping the US Dollar (USD) stabilize after its recent retreat from a 13-month peak, providing additional support for USD/JPY. While US President Donald Trump stated that Iran had sought talks with Washington in Qatar, Iranian officials denied that any negotiations with the US are planned in the near future.
Ask a trader what they expect to earn from their next trade, and the answer usually comes quickly. Ask how much they are prepared to lose, and the response often takes much longer. That hesitation reveals a common mistake.
Most Traders Focus on Potential Gains
Many traders enter a position thinking primarily about profits. They imagine the trade working out before it has even begun. The possible reward becomes the center of attention, while the potential loss is treated as a secondary concern.
The problem appears when the market moves against them. Emotions take over, discipline fades, and hope replaces strategy. A loss that could have been controlled grows larger because no clear exit plan was established beforehand.
Start With the Risk
Before calculating possible profits, determine the maximum amount you are willing to lose. Know where your stop belongs, how much capital is exposed, and whether your account can comfortably absorb the loss.
No trader is right all the time. Losses are an unavoidable part of trading. What separates experienced traders from inexperienced ones is that professionals decide in advance how much a losing trade will cost. Their losses are controlled, expected, and manageable.
Clarity Reduces Emotional Trading
Understanding your downside risk is not pessimistic—it is practical. When you know the worst-case scenario, you can make decisions more objectively.
Many trading mistakes stem from uncertainty. Traders move stop-loss orders, close winning positions too early, or hold losing trades too long because they do not have a clearly defined risk level. Once that level is established, it becomes much easier to follow the plan rather than react emotionally to market fluctuations.
Protecting Capital Comes First
Risk management is also supported by simple mathematics. A 50% loss requires a 100% gain just to break even. The larger the drawdown, the harder recovery becomes.
Without capital, there is no opportunity to participate in future trades. Preserving your account is not merely part of a trading strategy—it is the foundation of one.
Professionals Think Differently
Professional traders rarely begin by discussing potential profits. Instead, they focus on position size, stop placement, exposure limits, and the price level that would invalidate their trade idea.
Once risk is controlled, profits can take care of themselves. Professionals think in terms of hundreds or thousands of trades, while amateurs often become emotionally attached to the outcome of a single position.
Define the Loss Before Entering
Before placing any trade, imagine the market moving against you. Determine your exit point, calculate the dollar amount at risk, and make sure the loss is small enough that you can continue trading confidently tomorrow.
If the potential loss feels uncomfortable, the position size is likely too large.
Risk Before Reward
Successful trading begins with protecting the downside. Focus on risk first and reward second. Traders who consistently manage risk give themselves the opportunity to stay in the game long enough to benefit from future winning opportunities.
In the long run, survival is what makes success possible.
Gold started the previous week with a noticeable gap lower, highlighting the market’s ongoing uncertainty and elevated volatility. Price fluctuations are likely to remain significant in the near term as traders continue to react to various external factors.
The $4,000 level remains a key support zone. As long as gold stays above this threshold, short-term pullbacks could present buying opportunities. However, a decisive break below $4,000 may trigger a deeper correction, potentially sending prices toward the $3,500 area.
On the upside, a move above the 50-week EMA would strengthen the bullish outlook and could pave the way for a rally toward $4,600. That said, gold continues to be influenced by a range of macroeconomic and geopolitical developments, making its direction less predictable.
For now, the most likely scenario may be a period of consolidation, with prices trading within a broad range while the market searches for its next major catalyst.
EUR/CHF
The euro declined notably against the Swiss franc over the past week, yet the 0.92 level continues to serve as an important support area. A rebound from this zone would not be surprising, as the pair appears to be searching for enough momentum to resume a move higher, potentially targeting a break above 0.93.
In the near term, buying on a bounce remains an attractive strategy, especially if support at 0.92 continues to hold. However, if the pair falls decisively below this level, downside pressure could intensify, opening the door for a move toward 0.91.
Overall, EUR/CHF may remain range-bound in the short run, with traders closely watching whether support at 0.92 can sustain another upward attempt.
USD/CHF
The U.S. dollar posted gains against the Swiss franc during the week, but a significant portion of those advances was later erased. This price action suggests that the pair may be due for a corrective pullback after its recent rally.
The 0.80 level stands out as a key area to watch. A retreat toward this support zone could provide a potential buying opportunity if the market shows signs of stabilization and renewed bullish momentum. Traders may look for a bounce from this level as confirmation of a possible continuation higher.
On the upside, a breakout above the high of the current weekly candlestick would strengthen the bullish outlook and could lead to a test of the 0.82 level.
Overall, the short-term bias remains cautiously positive, although a pullback toward support may be needed before the next leg higher can develop.
USD/MXN
The U.S. dollar advanced against the Mexican peso during the week, but the 17.50 level once again proved to be a strong area of resistance. The subsequent pullback from those highs is not particularly surprising and suggests that the pair may continue trading within its established consolidation range.
Looking ahead, USD/MXN is likely to remain volatile and range-bound as traders assess the next directional catalyst. While occasional swings above or below recent levels are possible, the broader price action continues to favor consolidation rather than the start of a sustained trend.
Even if the U.S. dollar manages to break decisively higher against the Mexican peso, the move may not offer an attractive trading opportunity given the pair’s tendency to remain choppy and unpredictable. For now, traders may be better served by focusing on short-term range dynamics rather than chasing a potential breakout.
Nasdaq 100
The Nasdaq 100 moved lower throughout the week, but the broader picture suggests that the index is simply consolidating after an extended rally. Recent weakness appears to be a healthy pause as the market works off some of the excess optimism and overbought conditions that developed earlier.
Despite the pullback, the longer-term outlook remains constructive. Buyers are likely to re-emerge over time, although current market conditions do not necessarily justify taking large positions. The index may continue to trade within a range while investors assess economic data, corporate earnings, and monetary policy expectations.
Short-term declines could present attractive buying opportunities, particularly if prices approach the 28,500 level, which may act as a significant support area. For now, the focus remains on identifying value during pullbacks rather than betting against the broader uptrend.
Overall, the bias remains cautiously bullish, with dip-buying favored over short-selling.
GBP/USD
The British pound posted a modest recovery against the U.S. dollar during the week, with the 1.32 level continuing to establish itself as an important support zone. The market’s ability to hold above this area suggests that buyers remain active and willing to defend the pair on pullbacks.
On the upside, the 1.33 level remains a key resistance barrier. A successful move above this threshold would strengthen bullish sentiment and could pave the way for a further advance toward the 1.35 level.
In the near term, GBP/USD is likely to remain range-bound between support at 1.32 and resistance at 1.33 as traders wait for a stronger catalyst. However, a breakout above the upper boundary of this range could signal the start of a more sustained upward move.
Overall, the outlook remains cautiously positive, with the potential for additional gains if buyers can push the pair decisively above 1.33.
EUR/USD
The euro experienced a notable decline against the U.S. dollar during the week but managed to recover and return to the 1.14 area. This level has served as a major short-term support zone for much of the past year, making current price action particularly important for determining the pair’s next direction.
After briefly breaking below 1.14, the market has rebounded to retest this key level. Traders will be watching closely to see whether it acts as resistance following the breakdown or if buyers can regain control and push the pair higher.
A sustained move above 1.1450 would improve the bullish outlook and could encourage additional buying interest in the euro. However, there is also a strong possibility that EUR/USD remains anchored around the 1.14 level while the market searches for a clearer catalyst.
Ultimately, the pair’s direction may depend less on euro-specific factors and more on the broader performance of the U.S. dollar. As a result, developments in U.S. economic data, interest rate expectations, and overall dollar sentiment are likely to play a decisive role in shaping EUR/USD’s next major move.
USD/JPY
The U.S. dollar continued its gradual advance against the Japanese yen during the week, maintaining the bullish momentum established by recent breakouts. As a result, USD/JPY remains one of the key currency pairs to watch in the current market environment.
The 162.00 level represents an important resistance zone. A decisive break above this threshold could signal the continuation of the broader uptrend and open the door to further gains for the U.S. dollar.
While Japanese authorities have recently intervened in the currency market to support the yen, the underlying fundamentals still appear favorable for USD/JPY. In particular, the significant interest rate differential between the United States and Japan continues to attract investors toward the pair.
Short-term pullbacks may therefore present buying opportunities, especially if prices retrace toward the key 160.00 level, which is likely to act as an important support area. As long as this zone holds, the overall bullish bias remains intact.
Overall, the outlook continues to favor the upside, with traders closely monitoring whether USD/JPY can break through 162.00 and extend its recent rally.
USD/CAD weakens as the oil-sensitive Canadian Dollar draws support from higher crude prices.
Oil prices advanced after an attack on a vessel near Oman disrupted UN evacuations through the Strait of Hormuz, reviving concerns over global energy supplies.
Meanwhile, the US Dollar could remain supported by rising expectations of a Federal Reserve rate hike, which continue to bolster demand for the Greenback.
USD/CAD extends its decline for a second straight session, hovering near 1.4200 during Friday’s Asian trading hours. The pair comes under pressure as the commodity-linked Canadian Dollar gains support from stronger crude oil prices. Canada, one of the world’s largest net oil exporters, relies heavily on petroleum exports as a key source of foreign exchange revenue.
Oil prices climbed after a suspected projectile strike on a cargo vessel near Oman forced the United Nations to suspend evacuation operations through the strategically important Strait of Hormuz, reigniting concerns over global energy supply disruptions.
Geopolitical tensions escalated further late Thursday after two US officials claimed Iranian forces had opened fire on the vessel while it was transiting the strait. Iranian authorities later warned that ships operating outside designated Hormuz routes could no longer be assured safe passage.
However, losses in USD/CAD may remain capped as the US Dollar continues to draw support from increasing expectations of another Federal Reserve rate hike. CME FedWatch data currently shows markets pricing in a 63.4% chance of a rate increase at the Fed’s September 15–16 meeting.
The hawkish outlook has been reinforced by stronger inflation readings. The headline Personal Consumption Expenditures (PCE) Price Index accelerated to 4.1% year-over-year in May from 3.3% previously, marking the first time in three years that the gauge has risen above 4.0%. The surge was largely driven by higher energy costs linked to Middle East tensions, keeping expectations for additional tightening alive.
Meanwhile, the Fed’s preferred inflation measure, the core PCE index, edged higher to 3.4% annually from 3.3%, its strongest pace since October 2023, underscoring persistent inflation pressures that continue to underpin the Greenback.
The United States Dollar Index remains supported as expectations for a Federal Reserve rate hike continue to build. Markets are now pricing in a 63.4% chance of a rate increase in September, according to the CME Group FedWatch tool. Meanwhile, US PCE inflation accelerated to 4.1% in May amid oil supply concerns linked to tensions in the Middle East, reinforcing expectations that the Fed could keep tightening policy.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against a basket of six major currencies, recovers some of its previous session losses and trades near 101.50 during Friday’s Asian session. Investors now await the release of the Michigan Consumer Sentiment Index later in the day for fresh market direction.
The Greenback remains supported by increasing expectations that the Federal Reserve (Fed) could raise interest rates again. According to the CME FedWatch tool, markets are currently pricing in a 63.4% chance of a rate hike at the Fed’s September 15–16 meeting.
The hawkish outlook follows stronger inflation data, with the headline Personal Consumption Expenditures (PCE) Price Index rising to 4.1% year-over-year in May from 3.3% previously. The jump marks the first time in three years that headline PCE inflation has moved above the 4.0% threshold, largely driven by higher energy prices linked to tensions in the Middle East, keeping the possibility of additional Fed tightening alive.
Meanwhile, the core PCE Price Index, the Fed’s preferred measure of underlying inflation, climbed to 3.4% annually from 3.3% in April, marking the strongest core inflation reading since October 2023.
BMO Chief US Economist Scott Anderson stated that elevated PCE inflation is likely to keep the Fed cautious, with further rate hikes remaining a possibility. He added that persistent service-sector inflation may not ease quickly even if energy prices decline, suggesting continued policy debates between Fed hawks and doves.
The Australian Dollar remains under pressure versus the US Dollar as expectations for further Federal Reserve rate hikes stay firm.
Investors are now focusing on the US PCE Inflation data for fresh signals regarding the Fed’s future monetary policy direction.
Meanwhile, Australia’s labor market showed resilience, with employers adding 40.3K new jobs in May, surpassing market forecasts of 25K.
The AUD/USD pair edges slightly lower to around 0.6890 during Thursday’s European session as the Australian Dollar remains under mild pressure against the US Dollar. The Greenback continues to stay supported by expectations that the Federal Reserve’s next policy move could be another rate hike.
The US Dollar Index (DXY), which measures the USD against six major currencies, trades near 101.55 at the time of writing, remaining close to Wednesday’s more-than-one-year peak of 101.80.
Data from the CME FedWatch Tool shows markets are pricing in nearly an 82% probability of at least one Fed rate increase this year.
Traders are now turning their attention to the US Personal Consumption Expenditures (PCE) Price Index for May, scheduled for release at 12:30 GMT, as the report could provide fresh insight into the Fed’s future interest-rate path.
Meanwhile, Australia’s May labor market figures exceeded expectations. The Australian Bureau of Statistics reported that employers added 40.3K jobs during the month, well above forecasts of 25K. This follows April’s revised decline of 40.7K jobs, compared with the previously reported 18.6K drop. The unemployment rate also eased to 4.4% from 4.5%, matching market expectations.
Technical Analysis
AUD/USD trades near 0.6890 and continues to show a bearish short-term outlook, with the pair remaining below the 20-day Exponential Moving Average (EMA) at 0.7025. Price action has continued to drift away from the key trend indicator, while the Relative Strength Index (RSI) stands at 26.6 in oversold territory, suggesting that bearish momentum remains strong even though the recent decline may be overstretched.
On the upside, the first major resistance is seen around the 20-day EMA near 0.7025. A recovery above this level would help reduce immediate downside pressure.
On the downside, key support is located at the March 30 low of 0.6833. A break beneath this area could open the door for a deeper decline toward the January 7 high near 0.6766.
After the latest price action, markets are nearing a key inflection point.
The U.S. dollar is pressing against a significant resistance area, while precious metals are holding just above important support levels. The way today’s session closes could offer the confirmation traders have been waiting for and help define the next major directional move.
U.S. Dollar Index (DX.F)
As noted in the prior session:
“(…) The dollar remains confined within a relatively tight range, with recently reclaimed March highs acting as support, while a major resistance zone caps upside near the 38.2% Fibonacci retracement, the upper edge of the rising channel, and a bearish gap from late May 2025 (100.75–100.95). (…)”
From a current standpoint, buyers have successfully defended the reclaimed March highs, giving the dollar enough momentum to retest the highlighted resistance cluster.
At present, the index is trading above both the 38.2% Fibonacci retracement and the prior bearish gap from last year. However, the upper boundary of the rising channel remains a key barrier.
This level is important because today’s close could prove decisive not only for the dollar but also for the broader metals complex.
A daily close above the channel resistance would signal a potential breakout, opening the path toward the next resistance zone around 101.39–101.59, where the 127.2% Fibonacci extension aligns with the May 2025 highs. Such a development would likely weigh on precious metals.
Conversely, another failed breakout—similar to Friday’s rejection—could push the dollar back toward the March highs, offering relief to metals and easing downside pressure.
In short, today’s close may be one of the most consequential of the week.
Platinum (PL.F)
On the daily chart, one clear observation stands out.
Although platinum has not yet registered a daily close below the key 1641 level, buyers were unable to hold the June low—a technical signal that raises doubts about their commitment to sustaining higher prices.
The current low is now positioned within an important support zone, formed by two bullish gaps from late November, the lower boundary of the orange channel, and the 127.2% Fibonacci extension.
Put differently, support is still present.
However, support by itself is not sufficient.
If buyers fail to reclaim 1665 by today’s close—in effect losing the bullish gap from June 12—a move toward the 1600 area becomes increasingly probable, particularly if the U.S. dollar maintains upward momentum, consistent with Friday’s bearish scenario.
On the other hand, the first meaningful sign of recovery would be a daily close back above 1707, which would also reinforce the earlier invalidation of the break below the March low.
Palladium (PA.F)
To frame today’s session, it is useful to revisit yesterday’s outlook:
“(…) Palladium remains below the previously broken lower boundary of the orange consolidation. As long as price holds below 1305, a further decline toward the 1234 area cannot be ruled out. (…)”
From today’s perspective, palladium has largely followed that bearish roadmap, with the downside target now reached. Price is currently trading beneath the lower boundary of the June 12 bullish gap.
This is an unfavorable development for buyers.
The reason is straightforward: a sustained break below that gap threatens the validity of the previously discussed double-bottom structure.
At this stage, bulls need to act quickly to reclaim the gap. If they fail to do so, the market is likely to shift its focus toward the possibility of another downside extension.
Copper (HG.F)
Copper (HG.F) moved in line with yesterday’s technical expectations. As previously noted:
“(…) As long as Thursday’s price gap remains unfilled, the bearish outlook for Friday stays in place:
“(…) with the downside gap from Thursday still acting as overhead resistance, a retest of today’s low and a possible move toward the next support area around 617–619 remains on the table.”
The failed attempt to break back into the lower edge of Thursday’s bearish gap sparked renewed selling pressure, and price ultimately reached the projected downside target (well done to those who positioned for the move).
From here, the setup becomes more nuanced.
Copper has now entered a key support region defined by prior highs from February and April, along with the May 20 low. This zone previously stabilized price action in May and could again act as a base for buyers to step in.
However, given the strength and momentum of today’s bearish candle, any recovery may initially be limited, with a move toward the 38.2% Fibonacci retracement near 611 looking more likely than a full bullish reversal at this stage.
Today’s Takeaway
Dollar (DX.F)
Focus on the upper boundary of the rising channel
A daily close above it would open the path toward 101.39–101.59
Rejection would likely lead to a retest of the March highs
Today’s close is a key confirmation point
Platinum (PL.F)
Key level to watch: 1665
A close below this support keeps bearish pressure in place
Next major support lies near 1600
Bullish momentum only improves on a move back above 1707
Palladium (PA.F)
Trading below the June 12 bullish gap at 1249 raises the risk of further downside and a retest of recent lows
A recovery back above this level would weaken the bearish setup
Copper (HG.F)
Currently testing the 612.85–615 support zone
Next key level below is 611
A move back above 627.50 would invalidate today’s bearish breakdown
Stay disciplined, respect key levels, and let confirmation guide positioning.
The US Dollar Index (DXY) advanced to a fresh 13-month high of 101.45 on Wednesday, supported by strong domestic economic data and a complex geopolitical backdrop that continued to underpin demand for the Greenback. Further boosting sentiment, the US S&P Global Composite PMI rose to 52.2, surpassing May’s 51.5 reading and indicating that business activity in the United States remained on a solid expansionary path.
The US Dollar Index (DXY), which tracks the US Dollar’s performance against a basket of six major currencies, remained firmly supported for a third straight session, trading near a fresh 13-month high of 101.45 during Wednesday’s Asian trading hours.
The Greenback continued to draw strength from a combination of solid US economic fundamentals and an evolving geopolitical environment. Market participants weighed conflicting developments surrounding a potential diplomatic opening between the United States and Iran. While Donald Trump claimed that Tehran had fully agreed to allow nuclear inspections, Iranian Foreign Minister Abbas Araghchi cautioned that meaningful nuclear negotiations have yet to commence.
Geopolitical tensions remained elevated after Iran’s lead negotiator emphasized that the strategic Strait of Hormuz would not return to its pre-conflict status and would remain under Iranian control. At the same time, diplomatic efforts elsewhere appeared constructive, with Washington hosting a new round of discussions between Israel and Lebanon aimed at securing a ceasefire involving the Iran-backed Hezbollah.
On the economic front, upbeat US data reinforced the narrative of American economic resilience. The preliminary June S&P Global Composite PMI rose to 52.2, exceeding May’s 51.5 reading and signaling continued expansion in overall business activity.
The manufacturing sector remained particularly strong, with the output index climbing to 55.7 from 55.1, outperforming expectations of 54.8. Meanwhile, the Services PMI improved to 51.3 from 50.7, slightly above the market forecast of 51.0, highlighting persistent strength in service-sector demand. Investors now turn their attention to the May Personal Consumption Expenditures (PCE) Price Index, due on Thursday, for further clues on inflation trends.
According to the CME FedWatch Tool, expectations for a more hawkish stance from the Federal Reserve have strengthened considerably. Markets are currently pricing in an 86.1% probability of a rate hike in December, up sharply from 61% prior to last week’s FOMC meeting.
United States Dollar Index remains close to 13-month highs
The United States Dollar Index stays near a 13-month peak around 101.13, supported by hawkish expectations surrounding the Federal Reserve policy outlook. Meanwhile, US Vice President JD Vance stated that negotiations have achieved “great progress,” despite lingering tensions behind the scenes.
The United States Dollar Index (DXY), which tracks the US Dollar against six major currencies, traded steadily near the 101.00 mark during Tuesday’s Asian session after posting modest gains in the previous session.
The index continues to hover close to its 13-month high of 101.13, reached on June 19, as markets maintain a hawkish view on the Federal Reserve policy outlook. The Fed kept interest rates unchanged at 3.50%–3.75% during its June meeting.
Still, updated economic forecasts and remarks from Kevin Warsh, who chaired his first Fed meeting, were viewed as more hawkish than expected. Following the announcement, futures markets fully priced in a 25-basis-point rate hike for September, while also assigning a small probability to a potential increase as early as next month.
Despite the Dollar’s resilience, easing geopolitical tensions may limit further upside. Ongoing peace discussions between the US and Iran have improved market sentiment and reduced inflation concerns. According to CNBC, US Vice President JD Vance said negotiations had made “great progress,” although some tensions remain unresolved.
On Monday, Vance also stated that Iran had agreed to allow inspectors from the International Atomic Energy Agency back into the country. Iranian Foreign Minister Abbas Araghchi echoed the positive tone, noting that the Switzerland talks had produced “major progress.”
Gold holds steady near $4,200 as US–Iran peace progress offset by Fed hawkish stance
Gold prices remain flat near $4,190 during early Asian trading on Tuesday. Progress in US–Iran peace negotiations may pressure the precious metal, while expectations of a Fed rate hike later this year grow after the new Fed Chair struck a hawkish tone.
Gold prices remained steady near $4,190 during Tuesday’s early Asian session as traders monitored ongoing developments surrounding the US–Iran peace negotiations.
US Vice President JD Vance said talks between Washington and Tehran had made “great progress,” despite recent tensions. He noted that negotiations in Bürgenstock were continuing and that Iran had agreed to allow inspectors from the International Atomic Energy Agency back into the country.
However, discussions became strained after Iran announced the closure of the Strait of Hormuz in response to Israeli strikes on Lebanon, arguing the attacks violated the ceasefire agreement.
According to Saxo Bank analyst Ole Hansen, energy prices remain a major short-term driver for precious metals. He added that the uneven progress in US–Iran talks could pressure oil prices while supporting demand for gold.
Meanwhile, expectations for tighter US monetary policy also weighed on bullion. Markets increasingly anticipate a Federal Reserve rate hike later this year after new Fed Chair Kevin Warsh adopted a hawkish stance on inflation during his first policy meeting. Higher interest rates tend to reduce gold’s appeal since the metal does not offer yields.
Traders are now pricing in nearly an 89% probability of a Fed rate hike in December, up sharply from 61% before last week’s FOMC meeting, according to the CME FedWatch Tool.
You begin the day with a clear plan, but one trade goes wrong, then another. Before long, you’re down $1,500 on a $2,000 drawdown, and a familiar thought appears:
“Just one big trade to recover everything.”
That thought is often what destroys accounts.
When you’re in a deep drawdown, survival—not heroics—is the priority. If buying power remains, opportunity still exists. But once frustration dictates position size, trading turns into gambling.
The worst mistake is increasing size after losses
After a significant loss, the instinct is to recover quickly.
You want to erase the damage and return to breakeven as fast as possible. But that urgency is precisely what leads to account failure.
In recovery mode, the correct response is the opposite: reduce size.
If you’re already down heavily, the focus should shift from profit to control. Trading a single micro contract may feel insignificant, but it helps remove emotional pressure and restore discipline. Small, consistent trades rebuild confidence more reliably than aggressive recovery attempts.
Your real risk is the drawdown, not the account size
A $50,000 prop account can be misleading. The real constraint is often the drawdown limit—commonly around $2,000.
That figure defines your actual risk capacity.
A practical guideline is to risk only 5%–10% of the drawdown per trade. On a $2,000 limit, that equates to roughly $100–$200 risk per trade.
This ensures that a single mistake does not end the account. When already in drawdown, risk should usually be even smaller.
Use structured limits to prevent emotional trading
A useful safeguard is a two-trade rule: after two stopped-out trades, stop for the day.
This is not about predicting market direction. It is about protecting decision quality. After losses, traders tend to overtrade, widen stops, or force setups.
That’s where damage accelerates.
The objective is not to “win it back today,” but to prevent a manageable drawdown from becoming terminal.
Recovery is a process, not a moment
If you are down $1,500 on a $2,000 drawdown, your goal is not immediate recovery.
First, stop the bleeding. Second, regain rhythm. Third, rebuild gradually with disciplined execution.
Recovery may come in small increments—$100, then $150, then $200. The pace may feel slow, but consistency is what restores control.
Traders who chase full recovery in one move often lose the account. Those who scale down and focus on quality trades give themselves a real chance to recover.
A simple drawdown recovery framework
When approaching or exceeding risk limits:
Stop trading and reset
Reduce size to the smallest viable contract
Keep risk at 5%–10% of drawdown
Limit yourself to high-quality setups only
Stop after two consecutive losses
Respect daily loss limits
Avoid “make it back” trades
Rebuild gradually with discipline
This approach is not exciting, but it is effective.
Final thought
A drawdown does not have to end an account. Emotional decisions after the drawdown do.
Amateur thinking says: “I need one big trade to recover.” Professional thinking says: “I need to protect capital and trade back with discipline.”
If you’re down significantly on a small drawdown limit, the solution is not larger risk—it is smaller size, tighter control, and patience.
A few disciplined trades with minimal size can stabilize the account far faster than any aggressive recovery attempt.
Recent tensions in the Middle East have reignited discussion over whether the petrodollar system is beginning to weaken. Our view remains cautious. While a degree of diversification in how oil trades are settled is plausible, the more important issue is where Gulf oil revenues are ultimately invested. In both areas, any shift is likely to be incremental rather than disruptive.
The latest geopolitical developments have once again put the petrodollar debate in the spotlight. Markets are now asking whether disruptions in energy flows could speed up the adoption of non-dollar currencies in oil-related transactions. This is significant, as it feeds into broader questions about the dollar’s global dominance.
However, it would be premature to declare the “end of the petrodollar.” As with other de-dollarisation narratives, the underlying reality appears far more measured than headline-driven commentary suggests. It is useful to distinguish between trade invoicing and capital allocation. On the trade side, factors such as China’s rising role as a major Gulf energy buyer, the gradual expansion of renminbi payment systems, and experimentation with alternative settlement mechanisms are all noteworthy. Yet the dollar’s international position is equally, if not more, dependent on how surplus revenues from energy exporters are invested globally.
This is the central issue examined here. Overall, while there may be some gradual diversification in both trade settlement and investment flows, the core structure of the petrodollar system still appears deeply entrenched and difficult to displace.
Executive Summary
Oil settlement shift remains unproven. Data from March 2026 shows a temporary increase in renminbi-denominated settlement activity through China’s Cross-Border Interbank Payment System (CIPS), coinciding with the outbreak of the Iran conflict. However, this spike proved short-lived, with flows normalising in April and May. SWIFT trade finance data similarly indicates only a modest uptick in March, set against a broader gradual rise that began in 2022–2024. China’s expanding economic footprint in the Gulf remains an important structural factor, with its share of GCC trade rising to roughly 21% over the past decade. This has been accompanied by incremental progress in non-dollar settlement infrastructure, including the UAE–China swap arrangement, participation in mBridge, and cooperation between the UAE central bank and CIPS.
Gulf savings accumulation keeps sovereign wealth in focus. Excluding Saudi Arabia, GCC economies are expected to generate combined current account surpluses of around $150bn annually over the next five years, translating into roughly $0.8tr in external savings accumulation by 2030. Gulf sovereign wealth funds collectively manage about $6tr in assets, with the UAE alone estimated at around $2.7tr. This raises the central question of how these large pools of capital are allocated globally. On balance, GCC external portfolios remain heavily dollar-weighted, with around 69% of BIS-tracked international assets denominated in USD versus 46% globally, suggesting a stronger USD bias than the global average, even if sovereign wealth fund allocations are not fully captured in these figures.
What de-dollarisation could realistically look like. From a trade invoicing perspective, China’s role in GCC energy trade implies an upper bound of roughly $300bn in annual flows that could, in theory, shift toward yuan settlement under extreme scenarios. From an investment perspective, de-dollarisation would more likely emerge through a slowdown in new USD allocations rather than large-scale reallocation of existing holdings. Even a reduction in incremental USD investment flows to below about $100bn per year would signal a meaningful directional change.
GCC’s global role: significant but not system-defining. The Middle East accounts for roughly a quarter of global fuel exports, while fuel trade itself represents only 10–12% of total global merchandise trade. This limits the systemic impact of any GCC-driven de-dollarisation on the broader international monetary system. Overall de-dollarisation trends remain gradual, pointing to incremental diversification rather than a structural break. While the euro and renminbi may increasingly compete at the margins, the dollar’s dominance continues to be supported by entrenched network effects.
Market implications. Persistent USD dominance in GCC energy invoicing reinforces dollar network advantages, while USD funding markets demonstrated resilience even during the March peak in geopolitical stress.
Shift in Oil Settlement: Evidence Remains Inconclusive
The renewed conflict in the Middle East has reignited debate over whether momentum is building toward greater use of non-dollar currencies in energy invoicing. However, publicly available data remains limited and does not yet point to a clear structural shift. The increase in renminbi settlement activity seen in March through China’s CIPS system has been highlighted by some observers, including the European Central Bank, as a potential early signal of changing energy trade dynamics.
That said, the overall picture remains mixed. Following a temporary surge in March, CIPS transaction volumes eased back toward more typical levels in April and May, despite continued geopolitical tensions. SWIFT trade finance data offers a similar pattern: while renminbi usage had already been gradually rising through 2022–2024, the March 2026 increase was relatively modest and was followed by some decline in April, suggesting no sustained acceleration in non-dollar settlement activity so far.
The surge in CNY transactions seen in March so far looks to be a one-time event
China’s expanding economic footprint in the Gulf is an important factor to monitor. Expectations of greater renminbi use in Gulf energy trade are primarily driven by commercial rather than geopolitical considerations, as GCC countries are not subject to sanctions and retain flexibility in their choice of settlement currencies.
The commercial rationale begins with trade patterns. China’s share of GCC exports and imports has almost doubled over the past decade, reaching roughly 21%.
At the same time, Gulf trade has shifted increasingly toward emerging markets, which now represent about 60% of the GCC’s external trade—reversing the situation seen 25 years ago.
This shift is significant for global energy flows, given that the GCC accounts for 51% of total external trade turnover among emerging market fuel exporters in IMF classifications (excluding Russia, which is treated separately as a more diversified commodity producer). Within the GCC, the UAE has also surpassed Saudi Arabia in total external trade volumes over the past decade.
China’s share of GCC trade flows has almost doubled over the past decade, reaching 21% in annual turnover terms.
From a global trade and increasingly multipolar perspective, there is a gradual trend toward less dollar-exclusive energy settlement. This reflects China’s deepening trade ties with major exporters and the parallel development of alternative payment systems. Initiatives such as the UAE–China currency swap agreement, participation in mBridge, and the UAE central bank’s MoU with CIPS all indicate a slow but steady expansion of supporting infrastructure.
China’s renminbi internationalisation has progressed unevenly over the past two decades, but the overall direction has been toward broader use in trade settlement and payments. As China has become the largest trading partner for an increasing number of countries, greater RMB-denominated settlement has followed as a natural outcome of deeper trade integration.
A notable recent development during the Iran conflict was reports that Iran requested payments in Bitcoin or CNY, highlighting growing consideration of the renminbi as an alternative to the US dollar system, particularly as a way to mitigate exposure to US sanctions. Geopolitical factors may therefore continue to influence RMB adoption.
At the same time, policymakers have prioritised financial stability over rapid internationalisation. This approach is unlikely to change even amid de-dollarisation narratives. Limited capital account convertibility continues to constrain RMB internationalisation, and its role as a reserve currency remains relatively modest.
Nonetheless, policy efforts are ongoing. President Xi Jinping has emphasised the goal of a “powerful currency”. The People’s Bank of China has recently introduced a repo facility for foreign central banks, international financial institutions, and sovereign wealth funds, allowing them to access RMB liquidity using Chinese government bonds, central bank bills, and policy bank bonds as collateral. This could support greater RMB usage by providing access to China’s relatively low interest rates.
China currently maintains 32 currency swap lines totalling up to RMB 4.5 trillion. These arrangements have increasingly evolved from symbolic frameworks into operational liquidity tools. By the end of 2025, outstanding RMB drawn by overseas central banks had reached RMB 94.2 billion.
China continues to expand the infrastructure supporting RMB internationalisation.
However, greater Gulf exposure to China does not imply an erosion of the dollar’s role as a petro-currency. China’s rising share in global trade does not automatically translate into a proportional increase in RMB usage. Moreover, if Gulf economies continue to invest heavily in domestic energy, logistics, and defence infrastructure, their import demand is likely to remain diversified across both advanced and emerging market partners.
On swap lines, earlier this year there was significant attention on the UAE’s reported request for a standing US dollar swap line to join the group of major developed-market central banks such as the euro area, Japan, the UK, Switzerland, and Canada. Although this discussion has since faded from view, it suggests that the UAE continues to view itself firmly within the dollar-based monetary system, supported by its USD/AED currency peg.
The Gulf Continues to Build Oil-Related Savings…
The Gulf continues to build up significant oil-related savings. A key issue for the dollar narrative is not simply how Gulf trade is invoiced, but whether the region still generates sufficiently large external surpluses to remain influential in global capital flows. Some analysts argue that higher domestic spending and imports have reduced GCC current account surpluses to the point where the region is no longer a meaningful capital exporter.
However, IMF forecasts suggest a different picture. They indicate that the GCC as a whole will still accumulate substantial external surpluses. While Saudi Arabia is expected to remain closer to a balanced or even deficit position, the rest of the GCC—particularly the UAE, Qatar, and Kuwait—continues to stand out as a major source of savings. Excluding Saudi Arabia, the region is projected to generate around $150 billion in annual current account surpluses over the next five years, even assuming oil prices of $70–80 per barrel. This would amount to roughly $0.8 trillion in cumulative surpluses by 2030, which would need to be deployed into global financial assets.
The Gulf Continues to Build Oil-Driven Financial Surpluses
A key issue for the dollar narrative is not simply how Gulf trade is invoiced, but whether the region still generates sufficiently large external surpluses to remain influential in global capital markets. Some argue that higher domestic spending and imports have eroded GCC current account surpluses, reducing its role as a major exporter of capital.
However, IMF projections point in a different direction. Even if Saudi Arabia is expected to hover closer to balance or even modest deficits, the broader GCC remains a significant source of external savings. Excluding Saudi Arabia, countries such as the UAE, Qatar, and Kuwait are projected to generate combined current account surpluses of around $150bn per year over the next five years, assuming oil prices remain in the $70–80 per barrel range. Over this period to 2030, this translates into an estimated cumulative surplus of roughly $0.8tr that will need to be deployed into global financial assets by the GCC excluding Saudi Arabia.
Excluding Saudi Arabia, the GCC is projected to generate around $0.8tr in current account surpluses through 2030
Persistent external surpluses in the Gulf mean the region remains structurally important not only for trade invoicing, but also for shaping the currency composition of global financial assets. In the GCC, sovereign wealth funds play a central role in recycling these surpluses. As discussed previously, in hydrocarbon-exporting economies these funds often dominate external investment activity, far outweighing central bank reserve holdings.
Originally designed to preserve and grow finite oil and gas wealth for future generations, GCC sovereign wealth funds have expanded into major global investors, with combined assets under management of roughly $6tr. This represents more than one-third of the total assets held by the world’s 100 largest sovereign wealth funds. The UAE alone accounts for an estimated $2.7tr, making it the largest sovereign wealth hub in the region. Four of the six GCC countries rank among the world’s top ten sovereign wealth fund holders, underscoring the scale of their global financial footprint. These allocation decisions are therefore as relevant to the evolution of the petrodollar system as trade invoicing patterns.
GCC sovereign wealth: Scale and global relevance
Top-tier sovereign wealth ownership is heavily concentrated in the Gulf, reinforcing its systemic importance in global capital flows.
At the same time, the GCC remains broadly USD-oriented in its external investment profile. However, measuring this exposure precisely is difficult due to limited transparency. The IMF’s COFER dataset captures only central bank reserves, which are relatively small in the Gulf compared with sovereign wealth funds. Meanwhile, SWFs disclose little detail on currency composition. Even US Treasury data is distorted by custodial holdings in financial hubs such as the UK, Switzerland, and the Benelux countries.
As a result, indirect measures are used. One useful proxy comes from BIS locational banking statistics, which track the currency composition of cross-border banking claims and liabilities. While imperfect and not fully capturing sovereign wealth activity, it provides a useful indicator of external financial currency exposure.
On this basis, GCC external portfolios remain heavily dollar-centric. By end-2025, around $0.6tr—about 69% of international assets linked to GCC financial and non-financial sectors—were denominated in US dollars, significantly above the global average of roughly 46%. In contrast, euro exposure is relatively low at around 8%, compared with a global share of 34%. The region also shows a somewhat higher allocation to non-core currencies. Notably, rather than declining, the dollar share of GCC cross-border assets has actually increased over the past decade, diverging from broader global diversification trends.
GCC External Financial Exposure Remains Strongly USD-Weighted by Global Standards
Pre-2025 currency shares have been recalculated using end-2025 FX rates.
While BIS locational banking statistics are an imperfect proxy for sovereign wealth fund currency allocation—since most SWFs are structured outside domestic banking systems—they still offer a useful directional signal.
There are several reasons why this proxy is informative. First, the GCC’s currency pegs to the US dollar naturally reinforce USD dominance across both trade and capital flows, anchoring financial behavior to the dollar. Second, international comparisons provide validation. Norway is a useful benchmark because its sovereign wealth fund discloses detailed currency composition. In Norway’s case, BIS cross-border banking data does not exactly mirror the sovereign fund’s allocation, but it does reproduce the broad hierarchy of currencies quite accurately: the US dollar is dominant, followed by a group of non-core currencies, with the euro lagging behind. This supports the view that BIS-based measures can still capture meaningful structural patterns.
Norway cross-check supports BIS signal reliability
The Norwegian case suggests BIS banking data may not precisely match sovereign fund allocations, but it does reflect their overall currency ordering.
If the BIS-derived GCC data similarly reflects sovereign wealth fund behavior, it implies that a substantial share of Gulf sovereign wealth is already concentrated in dollar assets. On this basis, at least around $4tr of assets may be USD-denominated, compared with much smaller exposures to non-core currencies (approximately $0.6tr) and the euro (around $0.5tr).
In other words, the evidence suggests that GCC sovereign wealth is already heavily dollar-centric at scale, even if precise allocation data remains opaque.
What Gulf De-Dollarisation Could Realistically Look Like
The question is not whether Gulf de-dollarisation is likely, but what its practical upper bound would be if it were pursued as a stress scenario rather than a baseline forecast.
A useful extreme reference point is Russia. Since 2014—and especially after 2022—Russia’s external trade and reserves have shifted sharply toward China and the renminbi, driven by sanctions and constraints on access to traditional reserve assets. By 2025, the RMB share of Russia’s trade invoicing had risen to roughly match China’s share of its trade (around 30–33%), and the yuan also became a dominant reserve asset due to limited alternatives.
In Russia’s case, trade settlement increasingly aligned with the structure of its external trade, with China playing a central role in both imports and exports.
However, the GCC is fundamentally different. Its geopolitical position, financial integration, and market depth make a direct analogy misleading. At most, Russia provides a “stress boundary” for how far currency diversification can go under extreme constraints. In the Gulf, China accounts for roughly 20% of external trade, implying that even in an aggressive scenario, RMB invoicing might plausibly rise only to around that level. On that basis, up to roughly $300bn of the GCC’s estimated $1.5tr annual trade turnover could, in an extreme case, be invoiced in renminbi.
Trade shift potential is bounded, not open-ended
Even under aggressive assumptions, currency diversification in trade would likely remain structurally capped by actual trade composition.
The constraints are even more binding on the asset side. GCC sovereign wealth funds are too large and too globally embedded to be rapidly reallocated. As a result, any de-dollarisation process would likely occur incrementally through new annual flows rather than through reshaping the existing stock of assets.
Given projected current account surpluses of about $150bn per year, even a scenario where USD allocation falls below 70% of new inflows—roughly $100bn annually—would already represent a meaningful shift toward diversification. But even then, the dollar would remain dominant in accumulated wealth.
Importantly, this still falls far short of any rapid or wholesale exit from USD exposure as the primary store of Gulf wealth.
So far, most of the discussion around alternatives has focused on the renminbi. However, a more realistic end-state is likely multipolar rather than binary, with dollars, euros, RMB, and other currencies coexisting. The euro, in particular, appears unlikely to displace the dollar in energy markets. The eurozone accounts for only about 11% of GCC trade, and Europe itself has shown limited appetite to challenge USD dominance in oil pricing, despite some success in gas and carbon benchmarks.
That said, Europe’s financial markets are gradually becoming more competitive. Euro-denominated debt issuance rose sharply in 2026, up around 30% to a record $1.1tr, driven by stronger international participation and increased “Reverse Yankee” activity. While policy progress on deeper capital markets integration remains uneven, demand for euro-denominated assets has improved.
Stablecoins are sometimes mentioned as a potential new settlement layer for energy trade, but current evidence remains highly speculative. Where they are used, they tend to reinforce dollar dominance rather than weaken it, since most stablecoins are ultimately backed by USD assets. For example, Tether ranks among the largest holders of US Treasuries globally.
The Gulf remains central, but not decisive alone
Even if GCC invoicing or allocation patterns were to diversify, global outcomes would still depend on the broader energy system, not just the Gulf.
The Middle East accounts for roughly one-quarter of global fuel exports, meaning it is influential but not determinative of global pricing or currency use. Post-2022 shifts have also increased the role of the United States as a major energy exporter, especially in LNG.
According to the IEA’s medium-term projections, the Americas are expected to retain a strong position in global fuel markets, particularly in oil, with North and Latin America together holding about a 38% share versus roughly 33% for the Middle East.
In that context, the global energy system may be becoming more geographically fragmented, but not necessarily less dollar-centric.
Middle East Still Accounts for About a Quarter of Global Fuel Exports, While the Americas Remain a Strong Competitor
This underscores a key point: any serious “petrocurrency” argument must address two dimensions simultaneously. First, whether the Gulf itself gradually reduces its reliance on the US dollar in trade settlement and external savings. Second, whether any such shift is large enough to meaningfully alter global currency aggregates.
Broader de-dollarisation remains gradual
The petrocurrency debate is an important subset of the wider de-dollarisation discussion, particularly in relation to the UAE’s increasing global energy ambitions following its BRICS+ participation and more assertive production strategy. However, current evidence still points toward a slow-moving global adjustment rather than a structural break.
To begin with, global fuel trade itself is relatively small in the context of world commerce—only around 10–12% of total merchandise exports.
More importantly, international institutions consistently find that the US dollar remains the dominant currency in trade invoicing. The IMF reports no clear, broad-based shift away from the dollar in oil trade, while ECB analysis similarly shows that the dollar and euro together still account for more than 80% of global invoicing, with the renminbi remaining marginal at the global level.
Limited transmission from Gulf shifts to global currency structure
This matters for interpreting any potential diversification in Gulf energy settlement. Even if parts of energy trade become less exclusively dollar-based, the global impact would likely be muted unless accompanied by a broader reconfiguration of global financial markets.
The dollar’s dominance is not anchored solely in trade flows, but in the deeper structure of global finance—central bank reserves, private cross-border assets and liabilities, and the scale of USD-denominated debt and securities markets.
In fact, broader dollarisation indicators suggest that while there has been some long-term diversification—particularly on the asset side—this process has recently slowed. By 2025, several measures of de-dollarisation show signs of stagnation, reflecting the lack of deep alternative markets outside the US dollar and euro segments.
De-dollarisation has stalled at the margin
A key structural constraint remains the limited depth of non-USD and non-EUR debt markets, which restricts the ability of global investors— including sovereign wealth funds—to meaningfully diversify at scale.
Incremental change, not systemic shift
None of this implies a static system. Gradual increases in euro and renminbi settlement in selected energy transactions are plausible, as is a modest rebalancing in how Gulf surpluses are deployed.
But the broader picture remains one of incremental adjustment rather than systemic rupture: parts of the Gulf economy may become slightly less dollar-centric at the margin, without materially dislodging the dollar’s central role in global trade and financial architecture.
Market Implications
The advantages of the US dollar in international finance and invoicing are well established, largely driven by powerful network effects. Recent ECB analysis estimates that of the roughly 190 basis points of “convenience yield” earned by foreign investors holding US Treasuries, about 170 basis points is attributable specifically to the dollar’s reserve-currency status and global utility. In that context, continued Gulf exporters’ earnings and reinvestment in USD assets remain an important structural support for relatively low US government borrowing costs.
A related question that emerged during periods of geopolitical stress was whether developments in the Middle East could materially affect global dollar funding conditions. Specifically, could GCC economies—given their role as global oil exporters and financial intermediaries—be large enough providers of dollar liquidity through wholesale funding or commercial paper markets to tighten global USD funding if disrupted?
In FX markets, stress in dollar liquidity is typically reflected in the cross-currency basis swap market, where European institutions, for example, may effectively pay up to obtain dollars by swapping euros at a discount. During the peak of recent tensions in March, however, this indicator remained broadly stable, suggesting that global dollar funding markets were resilient and that any shock from the region remained localised rather than systemic.
Dollar funding resilience during stress episodes
Cross-currency basis swaps showed limited movement, reinforcing the depth and stability of USD funding markets even under geopolitical strain.
The broader petrodollar framework may be evolving, but only gradually. Recent geopolitical tensions have renewed attention on whether major energy producers and consumers will increasingly settle transactions in non-dollar currencies, and there are signs of marginal diversification—particularly with China’s growing role in Gulf trade and the gradual development of alternative payment infrastructures.
However, this should not be mistaken for a rapid erosion of dollar dominance. The key issue is not only the currency used in trade invoicing, but the destination of accumulated oil surpluses. On this front, the adjustment appears even slower. The Gulf continues to generate sizeable external surpluses, sovereign wealth funds remain the primary mechanism for recycling them, and available balance-sheet evidence still points to a financial system that is more dollar-weighted than the global average.
Bottom line
While the euro, the renminbi, and other non-core currencies can introduce greater competition at the margin—both in settlement and in incremental portfolio allocation—the evidence does not support a rapid de-dollarisation of the global system. Structural constraints, limited deep alternative markets, and entrenched network effects mean that any transition is likely to remain gradual. For now, the US dollar remains firmly embedded at the centre of global energy and financial flows.
The US dollar strengthened against the Japanese yen for most of the week, extending the broader bullish trend that has dominated the pair in recent months. As long as this momentum remains intact, traders are likely to view pullbacks as buying opportunities rather than signs of a reversal.
The ¥160 level may provide initial support in the near term. If the pair falls below that threshold, additional support could emerge around ¥158, where buyers may step in once again.
Bitcoin
Bitcoin moved lower during the week, but the cryptocurrency continues to find support around the key $60,000 level. This area remains an important technical floor for the market, and traders will be closely watching whether buyers can defend it in the coming sessions.
A decisive break below $60,000 could trigger additional selling pressure, potentially opening the door for a decline toward the $50,000 level, which represents the next major support zone.
AUD/USD
The Australian dollar attempted to move higher during the week but struggled to maintain its gains, with the market retreating and signaling a degree of underlying weakness. Despite the pullback, the pair remains confined within a well-defined trading range.
The 0.6950 level continues to serve as a key support zone, while 0.7150 remains a significant resistance area. As long as these boundaries hold, AUD/USD is likely to remain range-bound, with traders looking for opportunities at the extremes of the range.
USD/MXN
The US dollar advanced against the Mexican peso during the week, but the pair continues to encounter strong resistance around the 17.50 level. This area has repeatedly attracted selling interest and remains a key barrier for further upside momentum.
A sustained break above 17.50 could signal a shift in market sentiment and pave the way for a move toward the 18.00 peso level, which would become the next major upside target.
USD/CAD
The US dollar strengthened significantly against the Canadian dollar during the week, supported by growing concerns that the Canadian economy is losing momentum. Signs of slowing economic activity and increasing recession risks have weighed on the Canadian dollar, helping to drive USD/CAD higher.
As economic conditions in Canada remain challenging, the US dollar could continue to benefit from its relative strength, particularly if investors favor safer and higher-yielding assets.
Nasdaq 100
The Nasdaq 100 posted solid gains over the course of the week, reflecting the strong bullish sentiment that continues to support the technology-heavy index. Although the market opened with a gap higher on Monday, prices later pulled back to fill that gap before resuming their upward trajectory.
The successful rebound following the gap fill suggests that buyers remain firmly in control, reinforcing the positive outlook for the index.
Gold
Gold spent most of the week under pressure, although the broader market remained relatively stable as prices continued to hold above the critical $4,000 support level. This area has become a key battleground between buyers and sellers and is likely to determine the next major directional move.
A sustained break below $4,000 could signal a significant shift in market sentiment and potentially mark the beginning of a new bearish phase. For now, however, buyers appear willing to defend this important support zone.
Silver
Silver continued to trade in a volatile and directionless manner during the week, with prices hovering around the 50-week Exponential Moving Average (EMA). Similar to gold, the metal appears to be stuck in a broad consolidation phase, lacking the momentum needed to establish a sustained trend.
The market is currently positioned between two major technical levels: $60 on the downside and $70 on the upside. These boundaries have become the primary areas to watch for the next significant breakout.
The US Dollar Index remains under pressure after retreating from Wednesday’s 11-week peak of 100.57. The Greenback weakened as safe-haven demand eased following a preliminary US-Iran agreement aimed at ending the conflict. However, the Dollar could find support, as half of Federal Open Market Committee (FOMC) members still anticipate at least one interest-rate hike this year.
The US Dollar Index (DXY), which tracks the US Dollar’s performance against a basket of six major currencies, eased from Wednesday’s 11-week high of 100.57 and was trading near 100.30 during Thursday’s Asian session.
The Greenback came under modest pressure as demand for traditional safe-haven assets weakened after reports emerged that the United States and Iran had reached a preliminary agreement aimed at ending the conflict involving Iran and Israel. According to reports, the framework was endorsed by senior officials from both sides earlier in the week before being formally approved by US President Donald Trump and Iranian President Masoud Pezeshkian.
Despite the pullback, the US Dollar may find renewed support as expectations grow that the Federal Reserve could tighten monetary policy further later this year. The Fed’s June Summary of Economic Projections revealed that half of the Federal Open Market Committee (FOMC) members anticipate at least one additional rate increase in 2026. Persistent inflationary pressures and a resilient labor market continue to strengthen the case for higher borrowing costs, even amid economic uncertainty linked to tensions in the Middle East.
At its latest meeting, the FOMC unanimously decided to leave the federal funds rate unchanged at 3.50%–3.75%. Meanwhile, newly appointed Federal Reserve Chair Kevin Warsh emphasized his commitment to restoring price stability, signaling a firm stance against inflation during his first policy meeting at the helm of the central bank.
EUR/USD extends its recovery for a third consecutive session as easing US-Iran tensions weigh on the US Dollar.
The shared currency remains supported by the ECB’s relatively hawkish stance, adding further momentum to the pair.
Still, traders appear cautious ahead of the closely watched FOMC interest rate decision, limiting stronger bullish moves for now.
EUR/USD maintains a positive tone for the third consecutive day, holding comfortably above the 1.1600 level during Wednesday’s Asian session. Still, bullish momentum remains limited as traders prefer to stay cautious ahead of the outcome of the two-day FOMC policy meeting before committing to fresh positions following the pair’s rebound from last week’s two-month low near the 1.1500 psychological area.
Improved risk sentiment driven by optimism surrounding an interim peace agreement between the US and Iran continues to pressure the safe-haven US Dollar, providing support for EUR/USD. Meanwhile, the Euro also benefits from the European Central Bank’s hawkish stance after delivering its first rate hike in three years. The ECB additionally lifted its 2026 inflation forecast to 3%, citing persistent energy-related shocks and widening price pressures across the Eurozone.
Markets are still pricing in around 40 basis points of additional ECB tightening in 2026 despite easing geopolitical tensions in the Middle East. The US and Iran recently agreed to a preliminary peace framework aimed at ending the conflict that escalated earlier this year. The memorandum of understanding includes a 60-day ceasefire, the reopening of the Strait of Hormuz, and future technical negotiations regarding Iran’s nuclear program, though many details of the agreement remain unclear.
At the same time, expectations that the Federal Reserve could still deliver a 25-basis-point rate hike in December continue to limit downside pressure on the US Dollar and cap stronger gains in EUR/USD. Investors are now focused on the Fed’s policy announcement, updated economic projections, and the closely watched dot plot. Market participants will also closely monitor comments from Fed Chair Kevin Warsh during the post-meeting press conference for further insight into the future direction of monetary policy.
The Australian Dollar extends its decline against major currencies following the latest economic data from China. On a yearly basis, China’s Retail Sales fell by 0.6%, while Industrial Production increased by 4.5%. Market participants are now focused on the upcoming Reserve Bank of Australia (RBA) policy decision, with expectations that the Official Cash Rate (OCR) will remain unchanged at 4.35%.
The Australian Dollar (AUD) remains under pressure against its major counterparts during Tuesday’s Asian session, slipping 0.16% to around 0.7060 against the US Dollar (USD). After posting gains for three consecutive sessions, the AUD/USD pair reversed lower, with losses accelerating following weaker-than-expected economic data from China.
As Australia’s largest trading partner, China plays a crucial role in shaping demand for Australian exports, making Chinese economic indicators a key driver of the Australian Dollar.
Data released by China’s National Bureau of Statistics showed Retail Sales fell 0.6% year-over-year in May, missing expectations for a flat reading and reversing April’s 0.2% increase. Fixed Asset Investment also deteriorated, contracting 4.1% compared with forecasts of a 2.0% decline and the previous 1.6% drop.
In contrast, Industrial Production provided a bright spot, rising 4.5% annually, exceeding both market expectations of 4.3% and April’s 4.1% growth.
Attention now turns to the Reserve Bank of Australia (RBA), which is scheduled to announce its monetary policy decision at 04:30 GMT. Markets widely expect the central bank to keep the Official Cash Rate (OCR) unchanged at 4.35%.
Investors are likely to focus less on the rate decision itself and more on the RBA’s policy guidance, particularly as inflation pressures show signs of easing and labor market conditions soften. Australia’s annual Consumer Price Index (CPI) slowed to 4.2% in April, below forecasts of 4.4% and down from 4.6% previously. Meanwhile, the unemployment rate unexpectedly rose to 4.5%, compared with expectations and the prior reading of 4.3%.
These developments could influence the RBA’s assessment of the economic outlook and shape expectations for the future path of monetary policy.
After more than 100 days of conflict, financial markets finally have a clearer framework to price in developments. However, with Iran’s nuclear ambitions still unresolved, the coming two months could be just as pivotal as the period that preceded them.
A US-Iran memorandum of understanding (MOU) has created a pathway toward a formal peace agreement that could be finalized within 60 days.
Brent crude has plunged and the US dollar has softened as investors unwind positions established to hedge against geopolitical tensions.
Gold has continued to advance, reflecting lingering caution over unresolved nuclear-related risks.
EUR/USD bulls are targeting a key resistance area overhead.
Following more than three months of war, an official MOU is now in place and could serve as the foundation for a comprehensive peace accord within the next 60 days. Iran has confirmed the agreement, while a formal signing ceremony is scheduled to take place in Switzerland on Friday.
As expected, the announcement has triggered a sharp reversal of geopolitical risk trades. Even so, markets remain far from pre-conflict conditions, as investors are still concerned about how easily negotiations could break down. Iran’s nuclear program and uranium stockpiles remain major obstacles to a lasting settlement. Those concerns were highlighted just hours before the agreement, when Israel and Hezbollah were still exchanging missile strikes, underscoring the fragility of the situation.
Trump, meanwhile, presented a far more optimistic narrative on Truth Social, proclaiming that “the deal with the Islamic Republic of Iran is now complete.” He said the Strait of Hormuz would reopen and that the US naval blockade would be removed, concluding with the message: “Ships of the world, start your engines. Let the oil flow!”
Brent Crude Approaches Key Support Zone
Following the diplomatic breakthrough, Brent crude — the global oil benchmark — extended its decline to fresh multi-month lows, slipping into the low-$80s for the first time since mid-April, when an earlier agreement to reopen the Strait of Hormuz was announced. Markets appear to be betting that this latest deal could have a more lasting impact.
After breaking below both its 100-day moving average and the 50% Fibonacci retracement of the Iran-war rally late last week, Brent is now closing in on a key technical support zone around $80 per barrel. This level has repeatedly acted as both support and resistance over extended periods and previously triggered significant bullish reversals when tested during the conflict, making it the most important downside level in the near term.
A decisive break below $80 could shift attention to the 200-day moving average near $77, followed by an unfilled price gap between $76 and $73.55. The latter marks Brent’s closing price on February 27, just before the outbreak of the Iran conflict.
On the upside, the first notable resistance level sits at $88.65, representing the 50% retracement of the war-driven advance. Any rebound toward this area would likely coincide with renewed concerns about the durability of the peace process.
Technical indicators continue to favor the bears. Both the RSI (14) and MACD point to strengthening downside momentum, suggesting that short positions remain more attractive than longs while the current trend persists.
DXY Tests Key Support as Selling Pressure Intensifies
The US Dollar Index (DXY) opened the week with a downside gap, slipping below a key support area defined by the May uptrend line and horizontal support at 99.51. This zone is now the immediate battleground for price action. A decisive break beneath it could pave the way for a deeper decline toward the May 29 low of 98.75, with additional support found near the convergence of the 50-day, 100-day, and 200-day moving averages.
If buyers manage to regain control and push the index back above the broken support zone, attention would shift to last week’s high at 100.31, which represents the first significant resistance level overhead.
Momentum indicators are beginning to tilt in favor of the bears, although they have yet to generate a definitive sell signal. The RSI (14) is drifting back toward the neutral 50 mark, indicating fading bullish momentum, while the MACD appears close to a bearish crossover despite remaining in positive territory. For now, the signals serve more as a warning to dollar bulls than a clear invitation for aggressive short positioning.
EUR/USD Rally Encounters Key Resistance
EUR/USD broke above a resistance area formed by the 23.6% Fibonacci retracement of the January–March decline and the May 21 low at 1.1577 at the start of the week, allowing the pair to test the ascending trendline that has guided price action higher since the March lows. However, the pair briefly touched this trendline before retreating, making it the key resistance level to monitor in the near term.
A sustained move above the trendline would expose an even more formidable resistance cluster overhead. This zone includes the 50-day, 100-day, and 200-day moving averages, horizontal resistance around 1.1670, and a descending trendline extending from the January highs. Together, these levels form a significant technical barrier that could prove difficult for euro bulls to overcome, even amid the current supportive backdrop.
On the downside, if the March uptrend continues to cap gains, the former breakout area around 1.1577—marked by the 23.6% Fibonacci retracement and the May 21 low—may now act as initial support. A break below this level would shift focus toward the June lows near 1.1500.
Momentum indicators are currently sending neutral signals. The RSI (14) has broken above its recent downtrend, suggesting selling pressure is easing, while the MACD has just crossed higher from below, although it remains in negative territory. Together, these signals indicate that the downside momentum seen in recent sessions is fading, but they do not yet point to a strong bullish breakout.
Gold: Bullish Momentum Starts to Build
Gold has staged a decisive breakout following the deal announcement, surging above $4,240, a level that had capped gains late last week. With the breakout now confirmed, this area could shift into a support zone should prices experience a near-term pullback.
On the upside, the next key level to monitor is $4,352, the low recorded on March 23, which has acted as resistance on several occasions this month. Beyond that, attention turns to the May 28 low at $4,370 and former support at $4,427. If bullish momentum continues to accelerate, traders will also be watching the 200-day moving average near $4,450, a major technical hurdle visible on the daily timeframe.
Momentum indicators are beginning to support a more constructive outlook. The RSI (14) has climbed back above the neutral 50 mark, signaling improving buying pressure, while the MACD has crossed higher from below and is rapidly approaching positive territory. Together, these developments suggest that bullish momentum is building and could support further gains in the sessions ahead.
The US Dollar Index (DXY) slipped into the lower 99.00 range as improving risk sentiment reduced demand for the safe-haven currency. Market confidence strengthened on Monday following reports of a US-Iran agreement aimed at ending the conflict. From a technical perspective, the DXY has broken below the lower boundary of its ascending channel, signaling increasing downside pressure.
The US Dollar (USD) started the week under pressure as improving market sentiment reduced demand for safe-haven assets following reports of a peace agreement between the United States and Iran. The US Dollar Index (DXY), which tracks the Greenback against a basket of major currencies, continued its pullback from last week’s peak and fell to a new 10-day low near 99.30.
Market participants responded positively to news of a memorandum of understanding between Washington and Tehran aimed at ending the 100-day conflict and restoring access through the Strait of Hormuz. While details of the deal remain limited, investors have reacted with cautious optimism, leading to lower US Treasury yields and a weaker Dollar, while risk-sensitive assets attracted stronger demand.
Technical Analysis: DXY Falls Back Below Channel Resistance
The US Dollar Index (DXY) is hovering near 99.50 at the time of writing, maintaining a bearish short-term outlook after slipping below the lower boundary of its ascending channel. Technical indicators continue to favor the downside, with the 4-hour Relative Strength Index (RSI) falling beneath the 40 mark and the Moving Average Convergence Divergence (MACD) remaining in negative territory, both pointing to fading bullish momentum.
Despite the bearish bias, sellers have so far struggled to push the index below the intraday low of 99.38. A break beneath this level could pave the way for a decline toward the June 4–5 lows around 99.15, followed by the late-May support zone near 98.75.
On the upside, the area around 99.65—where the former channel support intersects with a previous support zone marked by the June 9, 11, and 12 lows—is expected to act as strong resistance. A decisive recovery above this barrier could open the door to the key psychological level at 100.00, with the June 11 high near 100.30 becoming the next target.
The NASDAQ 100 has experienced choppy price action this week as traders continue searching for clearer market direction. Despite the short-term uncertainty, the broader outlook remains bullish. However, ongoing geopolitical developments and headline-driven volatility could create additional risks, making it prudent to remain cautious rather than aggressively increasing exposure at current levels.
While the index continues to trade within a longer-term uptrend, investors may be wary heading into the weekend due to the possibility of unexpected developments in the Middle East that could impact market sentiment. Even so, the overall technical picture remains constructive, and any meaningful pullback is likely to be viewed as a buying opportunity, with traders looking to capitalize on potential rebounds within the prevailing bullish trend.
Gold
The gold market came under notable selling pressure at the start of the week, declining sharply and briefly testing the key $4,000 support level. This area remains a critical technical zone and is likely to attract close attention from traders in the coming sessions.
Gold prices continue to be heavily influenced by interest rate expectations. Recently, bond yields have edged lower as market participants speculate that the United States and Iran may be moving closer to a diplomatic agreement, reducing some geopolitical uncertainty and affecting demand for safe-haven assets.
From a longer-term perspective, the outlook for gold remains bullish. However, volatility is expected to remain elevated, and traders should be prepared for significant price swings. A sustained break below the $4,000 support level could trigger a deeper correction and lead to a more pronounced sell-off, making this a crucial level to monitor.
Silver
The silver market experienced volatile and uneven trading throughout the week, with price action remaining relatively noisy. Despite the fluctuations, the $60 level appears to be emerging as an important support zone and could serve as a near-term floor for the market.
On the weekly chart, the current candlestick is beginning to resemble a hammer pattern, which is often viewed as a potential bullish signal. It is also worth noting that much of the recent upward momentum was driven by Friday’s gap higher, suggesting that short-covering activity ahead of the weekend may have contributed significantly to the rally.
Looking ahead, a decisive break above the $70 level could signal a continuation of bullish momentum. If that resistance is cleared, silver may have the potential to advance another $10 relatively quickly as buyers regain control of the market.
DAX
Germany’s DAX index declined during the week, testing the important €24,000 support level before rebounding and showing renewed signs of strength. The recovery suggests that buyers remain active at lower levels, helping to stabilize the market after the recent pullback.
At present, the index appears to be trading within a broad consolidation range, with support near €24,000 and resistance around €25,000–€25,250. This upper zone continues to act as a significant barrier, limiting further upside progress in the short term.
The overall outlook remains moderately bullish, but expectations for explosive gains are limited. Instead, the DAX continues to favor a “buy-the-dip” approach, with traders likely viewing pullbacks as opportunities to enter long positions. Before a more substantial upward move can develop, the market may need additional time to build momentum and establish a stronger foundation above current levels.
S&P 500
The S&P 500 posted modest losses during the week, but the 7,300 level continues to provide strong support, a pattern that has been observed on several occasions in recent months. Buyers have consistently stepped in around this area, helping to maintain the broader bullish structure of the market.
On the upside, the 7,500 level remains an important resistance zone. However, a decisive breakout above 7,600 could serve as a catalyst for a stronger bullish move, potentially opening the door to a fresh leg higher in the ongoing uptrend.
The preferred strategy remains buying on pullbacks, although traders should be prepared for increased volatility. Seasonal summer trading conditions, concerns surrounding the bond market, and ongoing geopolitical tensions in the Middle East could contribute to choppy price action in the near term. Nevertheless, the overall outlook remains constructive. The market is still firmly in an uptrend, and while momentum has slowed somewhat, the underlying bullish trend remains intact.
EUR/USD
The euro strengthened against the U.S. dollar during the week, but the broader market structure remains largely range-bound. Despite the recent rally, EUR/USD appears to be trapped within a well-established trading range that has been in place since July 2025, with the 1.16 level serving as a key equilibrium or “fair value” area.
Given the current price dynamics, the pair may continue gravitating toward the middle of this range, with the 1.1600–1.1650 zone likely acting as an important area for traders to reassess market direction. Whether the euro can sustain further gains from there remains uncertain and will depend on broader macroeconomic developments.
One key indicator to monitor is the U.S. 10-year Treasury yield. Rising yields typically support the U.S. dollar by increasing the attractiveness of dollar-denominated assets. As a result, if Treasury yields begin moving higher, EUR/USD could come under renewed selling pressure and potentially reverse some of its recent gains. Overall, the pair continues to trade without a clear long-term directional bias, favoring a range-trading environment for now.
USD/JPY
The U.S. dollar traded largely sideways against the Japanese yen during the week, as the market continued to test a major resistance area near a swing high dating back to 1990. Although USD/JPY briefly moved above this level in 2024, the breakout lacked sustained momentum, leaving traders focused on whether a more decisive move higher can develop.
A key factor influencing sentiment is the possibility of intervention by the Bank of Japan. The central bank’s intervention several weeks ago helped slow the pair’s advance, but its long-term effectiveness remains uncertain. Many market participants believe that intervention alone may not be enough to reverse the broader trend.
From a fundamental perspective, the interest rate differential between the United States and Japan continues to favor the U.S. dollar, supporting a bullish outlook for USD/JPY. As a result, short-term pullbacks are still viewed as potential buying opportunities. Unless there is a significant shift in monetary policy or economic conditions, the pair appears positioned for another attempt at a sustained breakout. Even if intervention temporarily pushes prices lower, such declines could attract buyers looking to re-enter the market at more favorable levels.
USD/MXN
The U.S. dollar weakened against the Mexican peso during the week, a move that aligns with the pair’s recent technical structure. The 17.50 level has continued to act as a significant resistance zone, limiting upside attempts and reinforcing the broader range-bound environment.
On the downside, the 17.00 level remains an important area of support. With resistance clearly defined above and support holding below, USD/MXN appears likely to continue trading sideways in the near term, lacking a strong catalyst for a sustained breakout in either direction.
From a fundamental perspective, the interest rate differential continues to favor Mexico, making the peso relatively attractive compared with the U.S. dollar. As a result, short-term rallies in USD/MXN may continue to attract sellers. However, expectations for large directional moves remain limited. Ongoing uncertainty surrounding global risk sentiment, trade conditions, and supply-chain dynamics suggests that traders may prefer a cautious approach rather than taking aggressive positions in a currency pair that is often more sensitive to shifts in investor appetite for risk.
The US Dollar Index advances to near 99.80 during Friday’s Asian trading hours.
US military forces intercepted Iranian drones targeting vessels near the Strait of Hormuz.
US Producer Price Index inflation rose to its highest annual level since November 2022, while the monthly increase matched April’s pace.
The US Dollar Index (DXY), which tracks the US Dollar (USD) against a basket of six major currencies, trades near 99.80 during Friday’s Asian session. The index gains momentum as rising Middle East tensions and stronger-than-expected US inflation data support demand for the Greenback. Investors now await the preliminary June reading of the Michigan Consumer Sentiment Index, due later on Friday.
According to Fox News, US forces intercepted and destroyed two Iranian one-way attack drones near the Strait of Hormuz after Iran allegedly attempted to target commercial vessels passing through the critical shipping route.
The incident came shortly after US President Donald Trump stated on Thursday that he had called off additional military strikes on Iran, citing progress in negotiations toward a final agreement. Growing geopolitical uncertainty in the Middle East may continue to underpin the US Dollar in the near term.
Meanwhile, data released by the US Bureau of Labor Statistics on Thursday showed that producer inflation accelerated more than expected in May, reaching its highest annual level since November 2022. The Producer Price Index (PPI) rose 6.5% year-over-year, up from 5.7% previously and slightly above market expectations of 6.4%. On a monthly basis, PPI increased 1.1% in May, surpassing forecasts of 0.7%.
Core PPI, which excludes volatile food and energy prices, advanced 4.9% annually, matching April’s reading but falling short of the expected 5.4%. Even so, persistent inflation pressures are likely to keep the Federal Reserve (Fed) cautious about easing monetary policy anytime soon.
According to the CME FedWatch Tool, markets are currently pricing in a 43% probability of a quarter-point interest rate hike in December, compared with roughly 14% a month ago.
GBP/USD ticks up to around 1.3385 during Thursday’s Asian trading session. Rising expectations for additional US interest rate hikes, fueled by stronger-than-expected economic data, continue to support the US Dollar. Meanwhile, officials from the Bank of England (BoE) have indicated that the central bank is in no hurry to tighten monetary policy further.
The GBP/USD pair extends its recovery and climbs toward the 1.3385 area during Thursday’s Asian session. However, gains may remain capped as investors increasingly expect US interest rates to stay elevated for longer. Market participants are also adopting a cautious stance ahead of the release of the US Producer Price Index (PPI) later in the day.
Strong US labor market figures and persistent inflation pressures have reinforced the Federal Reserve’s higher-for-longer policy outlook, providing support for the US Dollar and limiting upside potential for GBP/USD.
According to the CME FedWatch Tool, markets now assign a 43.7% chance of a 25-basis-point rate hike in December, a significant increase from roughly 14% just one month ago.
Attention now turns to the upcoming US PPI report, which could offer fresh clues about the Fed’s policy trajectory under Chairman Kevin Warsh. Several major financial institutions have already pushed back their expectations for rate cuts, with Goldman Sachs forecasting that the Fed will keep rates unchanged through 2026 and not begin easing until 2027.
In the UK, Bank of England policymaker Alan Taylor recently stated that current interest rates are already restrictive enough and that additional tightening is unnecessary, despite inflationary risks linked to the Iran conflict. Meanwhile, BoE Governor Andrew Bailey reiterated last week that the central bank is “in no rush” to raise rates.
Traders are now looking ahead to Friday’s UK monthly GDP figures, which could provide further insight into the outlook for the UK economy and the future path of BoE monetary policy.
USD/CAD ticks lower on Thursday but struggles to extend its decline as traders navigate a mix of conflicting market signals. Stronger crude oil prices continue to support the Canadian Dollar, while a slight pullback in the US Dollar helps limit the pair’s upside. However, ongoing geopolitical uncertainties and contrasting monetary policy outlooks between the Federal Reserve and the Bank of Canada provide underlying support to USD/CAD.
The USD/CAD pair is struggling to build on its rebound from the 1.3900 area, a level that marked this week’s low, and is edging lower during Thursday’s Asian trading session. Despite the pullback, the pair remains close to Tuesday’s year-to-date peak, hovering just below the mid-1.3900s and posting a modest daily loss of less than 0.10% as investors weigh conflicting market drivers.
The Canadian Dollar finds support from rising crude oil prices after Iran announced the closure of the Strait of Hormuz in response to a new wave of US military strikes ordered by President Donald Trump. The geopolitical escalation has helped oil recover from Tuesday’s near two-month low, strengthening the commodity-linked Loonie. A softer US Dollar is also contributing to downside pressure on USD/CAD.
At the same time, escalating tensions between Washington and Tehran continue to underpin demand for the US Dollar as a safe-haven asset. Iran’s joint military command has vowed a “decisive and crushing” response to any US aggression in the region, heightening concerns over a broader conflict. Additionally, the surge in energy prices is reinforcing inflation fears and supporting expectations that the US Federal Reserve could maintain a more hawkish policy stance.
Market participants are now pricing in more than a 70% probability of a Fed rate increase before year-end, according to CME FedWatch data. Those expectations gained momentum after US inflation data showed the Consumer Price Index rising 4.2% year-over-year in May, the highest reading in three years. In contrast, the Bank of Canada remains relatively dovish, with policymakers placing greater emphasis on supporting economic growth despite inflation risks.
The policy divergence between the Fed and the BoC is likely to provide a floor for USD/CAD and may limit the pair’s downside potential. As a result, traders may prefer to wait for stronger selling momentum before concluding that the recent uptrend has ended. Attention now shifts to the upcoming US Producer Price Index release, while developments in the Middle East and movements in oil prices are expected to remain key drivers of market sentiment.
EUR/USD advances toward 1.1550 as investors await the ECB’s upcoming monetary policy decision. Expectations that the central bank could tighten policy further to address persistent inflation pressures are lending support to the euro. Meanwhile, escalating tensions in the Middle East are boosting safe-haven demand for the US Dollar, which may limit the pair’s upside potential.
The EUR/USD pair edges higher toward the 1.1550 level during Thursday’s Asian session as traders position themselves ahead of the European Central Bank’s (ECB) policy decision scheduled for 12:15 GMT.
Market participants widely expect the ECB to raise its Deposit Facility Rate by 25 basis points to 2.25%, aiming to address mounting inflationary pressures fueled by elevated energy costs. Such a move would mark the central bank’s first policy adjustment after eight consecutive meetings without changes.
Recent comments from several ECB policymakers have reinforced expectations of tighter monetary policy, with officials highlighting growing upside risks to inflation stemming from ongoing energy supply disruptions. Investors will closely scrutinize remarks from ECB President Christine Lagarde for clues on whether inflationary pressures could generate broader second-round effects across the Eurozone economy.
Meanwhile, the US Dollar has recovered part of its earlier losses as concerns mount that the fragile ceasefire between Iran and the United States could unravel following renewed military exchanges. Despite the rebound, the US Dollar Index (DXY) remains modestly lower on the day, trading around 99.97 at the time of writing.
Technical Analysis
EUR/USD is trading slightly higher near 1.1550 at the time of writing, but the broader technical outlook remains bearish following a breakdown from a Symmetrical Triangle pattern and the presence of a downward-sloping 20-period Exponential Moving Average (EMA), currently positioned at 1.1603.
Momentum indicators also point to persistent downside risks. The Relative Strength Index (RSI) remains below the 40.00 threshold, signaling renewed selling pressure while still staying comfortably above oversold territory.
On the upside, immediate resistance is seen at the 20-period EMA near 1.1603. Additional barriers emerge at 1.1623, where a previously supportive ascending trend line has turned into resistance, followed by a stronger descending trend-line resistance around 1.1707. On the downside, a break below the June 8 low near 1.1500 could accelerate losses toward the March 16 low at 1.1411.
The DXY is trading in a tight range just below the 100 level after last week’s strong rebound, with today’s May CPI report set to determine whether the recovery can extend further.
Markets expect headline inflation to climb above 4.0% year-over-year for the first time since May 2023, while core CPI is forecast to rise 0.3% month-over-month and 2.9% annually. A result in line with expectations would reinforce expectations of a Federal Reserve rate hike in December, providing continued support for the dollar.
The main downside risk lies in a softer core inflation reading. With shelter accounting for nearly 45% of the core CPI basket and rental inflation showing signs of moderation, a 0.2% monthly increase instead of 0.3% could push DXY back toward the 99.50–99.60 area. However, such a move would likely be viewed as a temporary pullback rather than a broader trend reversal, especially with tomorrow’s PPI release and next week’s FOMC meeting likely to keep demand for the greenback intact.
Outside of inflation data, equity markets remain volatile as investors reposition ahead of Friday’s SpaceX IPO. Meanwhile, Oracle’s earnings report after today’s market close will offer fresh insight into the strength of the AI-driven data centre sector during a sensitive period for technology stocks. Adding to the dollar’s support, investors directed $99 billion into USD money market funds last week—the largest weekly inflow of 2026—highlighting strong institutional demand for safe-haven assets.
Technical Analysis
The DXY has staged a strong rebound from its mid-May low near 97.80, climbing back above the psychologically important 100 level before easing slightly to around 99.85 in early trading. Immediate resistance is located in the 100.40–100.60 zone, which corresponds to the lower boundary of the former April trading range. A decisive break above this area would strengthen the case for a broader bullish reversal.
If CPI data comes in weaker than expected, the index could initially retreat toward the 99.50–99.60 region. A deeper decline would bring the critical support area between 99.00 and 99.20 into focus. While the broader momentum continues to favor further gains, today’s inflation report is likely to determine whether the dollar can extend its recovery or face a temporary setback.
Political friction and weakening economic data are putting downward pressure on the British Pound. Ahead of Friday’s critical April GDP release, markets are weighing the threat of a recession against the likelihood of more Bank of England rate hikes aimed at curbing energy-driven inflation. This cautious sentiment is deepened by a high-stakes leadership challenge within the ruling Labour Party, prompting major financial institutions to downgrade their short-term outlook for Sterling.
Weak Growth and Fiscal Vulnerabilities Threaten to Drag Down the Pound
Macro strategists at Brown Brothers Harriman (BBH) warn that the British Pound is highly vulnerable to a sharp drop against the US Dollar. This risk is driven by a combination of a shrinking UK economy and persistent stagflationary pressures. While the Bank of England (BOE) is expected to step in to control inflation, potential political instability could undermine the nation’s fiscal credibility, accelerating the currency’s decline.
Key Takeaways:
GBP/USD Forecast: The exchange rate is projected to slide to 1.3100, reflecting a stronger US economic outlook compared to the UK’s.
The BOE’s Dilemma: Raising interest rates during a period of low growth and high inflation won’t spark a bullish run for the Pound, though it should help cushion its fall.
Political Risk: Any upcoming leadership shake-ups could damage fiscal trust, worsening the currency’s downward trajectory.
Uncertainty Surrounds the Bank of England’s Next Steps
Economists at Societe Generale suggest that the political buzz surrounding Manchester Mayor Andy Burnham’s bid for the Labour leadership is unlikely to trigger drastic policy shifts in the near term. Meanwhile, the Bank of England’s (BoE) monetary policy outlook remains mixed. While aggressive, hawkish members of the Monetary Policy Committee (MPC) are strongly advocating for an immediate interest rate hike, the broader consensus points toward a more cautious, “wait-and-see” approach.
Key Takeaways:
Rate Decision Outlook: The BoE is expected to keep interest rates unchanged for the June meeting.
MPC Division: Members pushing for a rate hike are anticipated to remain in the minority.
Political Impact: Political noise from the Labour leadership contest is expected to have a limited impact on the broader economic landscape.
Major Banks Forecast a Downward Bias for the British Pound
Major financial institutions expect the British Pound to face a weak outlook. While both institutions anticipate a lack of upward momentum, their specific forecasts differ based on economic drivers:
Brown Brothers Harriman (BBH): Maintains an explicitly bearish stance, predicting the GBP/USD pair will drop to 1.3100. This is driven by the UK’s weak growth narrative underperforming compared to a stronger US economy.
Societe Generale: Foresees a more range-bound, stagnant path. They believe the Pound lacks immediate upward momentum because the Bank of England is expected to hold interest rates steady rather than pursuing aggressive hikes.
US Dollar Index Outlook: Bullish Momentum Supported by Climbing 20-Day EMA
DXY Slips: The US Dollar Index pulled back to near 99.90.
Geopolitical Driver: Optimism grew after President Trump stated that US-Iran negotiations are in their final stages, with a deal possible in two to three days.
Next Catalyst: Market focus is shifting to the upcoming release of May’s US CPI data.
The US Dollar (USD) experienced mild downward pressure during Tuesday’s European trading session, sparked by renewed optimism surrounding a potential agreement between the United States and Iran. At the time of reporting, the US Dollar Index (DXY), which measures the Greenback’s performance against a basket of six major currencies, dipped 0.1% to hover around 99.90.
According to The Guardian, prospects for a US-Iran agreement have improved following remarks from President Donald Trump, who stated that negotiations are in their “final throes” and hinted that the critical Strait of Hormuz could reopen within days if a deal is finalized. This development is bearish for the US Dollar, which had previously rallied on the back of soaring energy prices caused by the strait’s closure. High energy costs had been driving US inflation and fueling hawkish expectations for the Federal Reserve.
Back home, the market is bracing for Wednesday’s release of the May Consumer Price Index (CPI) data. Headline inflation is projected to climb to 4.2% year-on-year, up from April’s 3.8%. Any signs of accelerating inflation will likely bolster expectations for Fed rate hikes, especially after last week’s robust Nonfarm Payrolls (NFP) report already intensified hawkish sentiment over the last two trading sessions.
DXY Technical Analysis
The US Dollar Index (DXY) spot is ticking slightly lower near 99.90. However, the short-term outlook remains bullish as the price holds above its 20-day exponential moving average (EMA) at approximately 99.30. This level sits well above the ascending trend-line support originating from the 95.55 region, which is currently tracking near 98.34.
Furthermore, the 14-day Relative Strength Index (RSI) is hovering in the low 60s, indicating healthy upward momentum without entering overbought territory. This supports a constructive outlook while the index consolidates just beneath the crucial 100 psychological level.
On the downside, immediate support rests at the 20-day EMA (99.30), followed by stronger support at the rising trend line near 98.34. A daily close beneath this lower threshold would damage the bullish setup and invite a deeper correction. Conversely, an upside break above the June 8 high of 100.20 could clear the way for the index to revisit its one-year peak at 100.64.
The Australian Dollar is projected to experience a measured decline, heading toward the 0.7000 mark against the US Dollar.
Daily Forecast (Next 24 Hours)
UOB analysts Quek Ser Leang and Lee Sue Ann expect the Australian Dollar to stabilize and trade within a 0.7015 to 0.7065 range today. While the currency briefly dipped to 0.7016 shortly after yesterday’s market open—approaching the projected 0.7020 support level—a subsequent recovery to 0.7078 has successfully mitigated immediate downward momentum.
Short-Term Outlook (1–3 Weeks)
The broader near-term bias remains tilted to the downside. Following a sharp sell-off last Friday that triggered building downward momentum, the analysts maintain that AUD/USD is on track to weaken toward 0.7000. This bearish outlook stays intact provided the currency does not break above the strong resistance level at 0.7105.
Long-Term Outlook (Multi-Month)
Looking further ahead, the structural risks for the pair point toward a gradual decline, with a major floor and significant technical support expected around 0.7040.
Traders are currently holding the biggest short position on the U.S. dollar in six months. However, when positioning becomes overly one-sided, markets often move in the opposite direction.
The “debasement trade” was built on expectations of Fed rate cuts and easing inflation. But instead, inflation has reaccelerated, with April CPI at 3.8% and PPI at 6%, leaving the Fed on hold potentially through 2027.
While the inflation surge is largely driven by energy prices, underlying service-sector inflation remains persistent, limiting the Fed’s ability to ease policy even if oil prices decline.
A stronger U.S. dollar acts as a channel for global monetary tightening, weighing on assets like gold, silver, and oil, while also creating an asymmetric setup for long-duration Treasury bonds.
The preferred strategy is a barbell approach: holding short-term Treasury bills for stable yield with minimal duration risk, while gradually adding long-duration exposure as 30-year yields move toward the 5% level.
The most crowded short in U.S. markets isn’t in equities or big tech—it’s the U.S. dollar. Earlier this year, speculators extended dollar selling for eight consecutive weeks, while asset managers turned net short on the DXY for the first time in months.
Across macro funds, the positioning is strikingly uniform: expectations for a weaker dollar, stronger gold and commodities, and a broader narrative of currency debasement. In that context, the “strong dollar” trade—effectively betting against this consensus—has become the potential pain trade heading into 2026. When positioning becomes one-sided, the market often moves in the opposite direction.
In macro terms, positioning is one of the clearest signals of vulnerability, revealing where consensus is most exposed. At present, that exposure is heavily skewed to one side.
According to Saxo’s COT analysis for early January, non-commercial positioning in IMM FX futures showed roughly $11.9 billion in net dollar shorts, the largest bearish exposure in about six months. Asset managers had also shifted to a net short DXY stance for the first time since mid-October, aligning with leveraged funds in a broadly bearish dollar view. As Bob Farrell’s Rule #9 notes, when consensus becomes near-unanimous, the market is often closest to a reversal.
The flaw in the dollar-bearish narrative is that it was built on expectations that never materialized. The market assumed the Federal Reserve would begin cutting rates, inflation would continue easing, and foreign currencies such as the euro, yen, and many emerging-market currencies would benefit from an improving global growth outlook.
Instead, inflation has remained stubbornly elevated. April CPI rose 3.8% year-over-year, its highest reading since May 2023, while PPI accelerated to 6%, marking the strongest pace since 2022. Core PPI, which strips out food and energy prices, climbed to 5.2%, underscoring persistent underlying price pressures.
As a result, markets have dramatically reassessed the policy outlook. Expectations for Fed rate cuts throughout 2026 have largely been priced out, while the probability of a rate hike before year-end has rebounded to roughly 35%–39%.
With inflation proving more persistent and monetary easing no longer imminent, the foundation of the widespread short-dollar trade has weakened considerably. The assumptions that justified betting against the dollar are no longer supported by the data.
A fair counterargument to the strong-dollar view is that much of the recent inflation surge can be traced back to energy. The U.S.–Iran conflict that erupted in late February pushed crude oil to its highest levels in four years, making energy the primary driver of both the CPI and PPI increases. Remove food and energy from the equation, and core CPI comes in at 2.8% rather than the headline 3.8%.
From the debasement perspective, the case is straightforward: inflation is being distorted by a temporary oil shock. If crude prices retreat, headline inflation should ease, giving the Federal Reserve room to resume rate cuts and reviving the bearish-dollar thesis.
The challenge with that argument is what lies beneath the surface of the inflation data. April’s PPI report showed that services accounted for roughly 60% of the monthly increase, marking the strongest services inflation since 2022. Meanwhile, core producer prices excluding food, energy, and trade services rose 4.4% year-over-year.
That matters because services inflation is not simply a reflection of higher fuel costs. It points to broader price pressures spreading through the economy, supported by resilient demand and continued economic strength. Unlike an oil-driven spike, these pressures tend to be more persistent and do not disappear as soon as energy prices decline. Even if crude retreats, the underlying inflation trend may prove sticky enough to keep the Fed cautious and delay the policy easing that dollar bears have been counting on.
The bearish-dollar thesis depended on two key developments: easing inflation and Federal Reserve rate cuts. At this point, neither appears to be materializing.
The Hawkish Shift Supporting the Dollar
The confirmation of Kevin Warsh as Fed Chair on May 13 reinforces the possibility of a more hawkish policy environment. The irony is notable. While Warsh was widely expected to support lower rates and has previously acknowledged room for monetary easing, he has spent years criticizing quantitative easing and advocating for a smaller Fed balance sheet. Now he finds himself facing a backdrop of accelerating inflation that limits his flexibility.
Even if Warsh would prefer to deliver the rate cuts many investors anticipated, current economic conditions may not allow it. Following the April CPI release, analysts such as Krishna Guha argued that the inflation data strengthened the case of policymakers who believe the Fed’s next move could be a hike rather than a cut.
The market’s expectations have shifted accordingly. Goldman Sachs has pushed its forecast for the next rate cuts to December 2026 and March 2027, envisioning only two quarter-point reductions over that period. With producer inflation accelerating, oil prices elevated, and labor-market conditions remaining firm, the environment looks far less supportive of a weaker dollar than many investors had expected.
Why the Dollar Trade May Still Be Early
Although the Dollar Index has rebounded from below 97 in late April to around 98.8 by mid-May, the broader move remains modest. The dollar is still lower on the year by roughly 1.5%, meaning the bullish-dollar trade has yet to become crowded.
That is precisely what makes the setup interesting. Investor positioning remains heavily skewed toward dollar weakness, while the fundamental catalysts increasingly point in the opposite direction. If expectations continue to shift toward higher-for-longer rates, the dollar could have significant room to appreciate simply because so few investors are positioned for that outcome.
The 1970s Comparison May Be Misleading
A common argument among dollar bears is that the current environment resembles the inflationary 1970s, implying sustained currency debasement and negative real returns. However, the real-yield backdrop today looks fundamentally different.
Using April’s 3.8% CPI reading, realized real yields remain positive:
2-year Treasury: approximately +0.1%
10-year Treasury: approximately +0.7%
Fed funds rate: approximately +0.7%
Meanwhile, the 10-year Treasury Inflation-Protected Securities (TIPS) market implies a real yield near 1.95%, reflecting investors’ expectations for future inflation rather than current price growth.
Those figures are not especially restrictive, but they are far removed from the 1970s experience, when real yields frequently plunged to around -5%. That distinction matters. Sustained dollar weakness typically requires deeply negative real returns and an aggressively accommodative central bank. Today’s environment features neither condition, suggesting the historical comparison may be overstated and that the case for a stronger dollar remains more compelling than current market positioning implies.
The key takeaway from the 1970s comparison is that while the U.S. fiscal backdrop may share some similarities—rising debt levels and significant foreign ownership of Treasuries—the economic transmission mechanism that drove the dollar’s collapse during that era is largely absent today. The 1970s featured deeply negative real interest rates, a self-reinforcing wage-price spiral, and an economy heavily dependent on oil-intensive industrial production. Without those ingredients, the historical parallel begins to break down.
What a Stronger Dollar Could Mean for Commodities
The implications are significant because many commodity markets remain positioned for the opposite outcome. Gold, silver, and crude oil have all benefited from expectations of a weaker dollar, easier monetary policy, and continued currency debasement. If the dollar strengthens instead, the underlying assumptions supporting those trades become less compelling.
Gold and silver are particularly sensitive to dollar movements. Because they are priced in U.S. dollars, a stronger greenback raises their cost in foreign currencies and can reduce international demand. Silver may face additional pressure because, unlike gold, it relies more heavily on industrial consumption, which tends to soften when financial conditions tighten and economic growth slows.
Oil presents a more complex case. On one hand, crude prices remain supported by supply concerns stemming from the U.S.–Iran conflict. On the other, a stronger dollar and slower global growth would typically weigh on demand and exert downward pressure on prices. As a result, oil is caught between geopolitical risk and macroeconomic headwinds.
According to market commentary from the delta-one desk at Goldman Sachs, a meaningful decline in crude prices could help broaden equity market participation beyond the dominant mega-cap technology names. A stronger dollar could contribute to that outcome, particularly if tensions around the Strait of Hormuz begin to ease.
Why Lower Oil May Not Mean Lower Rates
The most important aspect of the thesis is that falling oil prices do not automatically lead to Federal Reserve easing. Lower crude prices would likely reduce headline inflation, but they would do little to address the persistent services inflation embedded throughout the economy.
If services inflation remains elevated, the Fed may have little incentive to cut rates even as energy prices retreat. In that scenario, the dollar would retain support from relatively high interest rates while commodities lose support from falling inflation expectations.
That dynamic creates a challenging backdrop for the broader commodity-supercycle narrative. Much of the bullish case for gold, silver, and other dollar-denominated assets rests on the assumption of a weakening dollar and easier monetary policy. If those assumptions prove incorrect, the foundation supporting the trade becomes considerably less stable, raising the risk of a significant reversal across commodity markets.
This is where the debate diverges most sharply from the prevailing gold-and-debasement narrative. The common view is that fiat currencies and government bonds are structurally impaired, leaving hard assets as the only viable refuge. But if the dollar strengthens, the chain of effects may point in the opposite direction.
A stronger dollar acts as a powerful transmission mechanism for global financial tightening. It:
Drains liquidity from emerging markets.
Increases the burden of dollar-denominated debt for foreign borrowers.
Tightens global financial conditions.
Slows economic activity outside the United States.
Over time, that slowdown can feed back into the U.S. economy, reducing inflation pressures and lowering inflation expectations. When that happens, long-term Treasury yields tend to fall rather than rise.
This is why the bond market may be more attractive than many investors currently assume. The 30-year Treasury yield closed near 4.98% on May 11, hovering just below the 5% threshold that Michael Hartnett has identified as a level where broader market stress could emerge. If tighter financial conditions begin to weigh on growth, the long end of the Treasury curve could rally as investors seek safety and markets price in slower economic activity.
In that environment, Treasury bonds—after enduring one of their worst multi-year periods in decades—could become one of the biggest beneficiaries of a stronger-dollar regime. The irony is that the same dollar appreciation many investors dismiss as unlikely may be the catalyst that restores bonds’ traditional role as portfolio stabilizers.
Viewed through this lens, the sequence is not:
Dollar weakness → higher inflation → higher bond yields → hard assets win.
Instead, it may be:
Dollar strength → tighter global liquidity → slower growth → lower inflation expectations → lower long-term yields → bonds outperform.
That possibility is largely absent from current consensus positioning. Many investors remain heavily allocated to the debasement trade—long gold, long commodities, short duration, and short dollar. If the dollar continues to strengthen, the assets expected to benefit from inflation could face headwinds, while the most neglected trade may be a recovery in long-duration Treasury bonds.
The broader implication is that the debate may not be about whether inflation exists today, but about which force ultimately dominates: persistent inflation or the growth slowdown that tighter financial conditions can create. If the dollar becomes the vehicle for that tightening, bonds could emerge as the unexpected winner.
How to Position for the Trade
To be fair to the opposing view, the debasement thesis is not without merit. U.S. fiscal deficits remain large, government debt continues to grow, and central banks around the world are accumulating gold at the fastest pace in decades. Meanwhile, bond markets are showing signs of stress elsewhere: Japan’s long-term yields have surged to record highs, and the UK continues to grapple with periodic gilt-market volatility.
The key issue, however, is that these challenges are not unique to the United States. The euro area faces its own fiscal constraints, Japan is dealing with mounting pressure in its government bond market, and the UK remains vulnerable to political and fiscal uncertainty. Currency markets are relative, not absolute. In that comparison, the U.S. dollar still benefits from higher yields, deeper capital markets, and a Federal Reserve that remains reluctant to ease policy while inflation pressures persist.
In other words, the dollar may not be attractive because conditions in the U.S. are ideal—it may be attractive because conditions elsewhere are no better and, in some cases, worse.
A Barbell Strategy for a Stronger-Dollar Scenario
If the stronger-dollar thesis proves correct, a barbell approach offers a logical way to express the view.
One side of the portfolio:
Hold cash and short-duration Treasury bills.
Capture yields above 4%.
Avoid duration risk.
Benefit directly from a higher-for-longer interest-rate environment.
The other side of the portfolio:
Gradually accumulate longer-duration Treasuries as yields approach historically attractive levels.
Long-duration instruments could benefit disproportionately if tighter financial conditions eventually slow growth and drive long-term yields lower.
Vehicles such as long-duration Treasury ETFs become increasingly attractive if the economy weakens while the Fed remains restrictive.
This structure allows investors to earn attractive short-term yields today while maintaining exposure to a potential bond rally if growth deteriorates.
Commodities: More Caution Than Conviction
Under a stronger-dollar scenario, the risk-reward profile for commodities becomes less favorable.
Gold: After a substantial rally over the past year, much of the easy upside may already be reflected in prices.
Silver: Faces both monetary and industrial headwinds if tighter financial conditions weigh on growth.
Oil: Still supported by geopolitical risks, but vulnerable to a combination of stronger-dollar effects and weaker global demand.
Rather than aggressively adding commodity exposure, investors may find it more prudent to reduce overweight positions or maintain only modest allocations as hedges against geopolitical shocks.
The Investment Implication
The central argument is not that a stronger dollar is guaranteed. It is that the market remains heavily positioned for the opposite outcome.
Consensus trades often become vulnerable when the underlying assumptions begin to weaken. If inflation remains sticky, rate cuts continue to be pushed further into the future, and global growth slows under tighter financial conditions, the strongest opportunities may emerge in assets that few investors currently favor:
Long U.S. dollars.
Short-duration Treasuries.
Selective long-duration bond exposure.
Reduced reliance on the commodity-debasement narrative.
The essence of the trade is simple: position for the outcome that the market is least prepared for. If the dollar strengthens while investors remain committed to the weak-dollar consensus, the resulting adjustment could become one of the most consequential macro shifts over the next several quarters.
The US Dollar Index remained largely unchanged near 100.10 during Monday’s Asian trading session. The greenback drew support after Israel reported carrying out strikes on Iran in response to missile attacks, while stronger-than-expected US employment data prompted traders to increase expectations of a Federal Reserve rate hike later this year.
The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, hovered near 100.10 during Monday’s Asian session, holding close to a one-month high. The index remained supported by growing geopolitical tensions in the Middle East and increasing expectations that the Federal Reserve could tighten monetary policy further later this year.
According to reports, Israeli forces launched strikes on military sites in western and central Iran after Iran fired multiple missiles toward northern Israel. Iranian state media also reported explosions in several cities, including Isfahan, Tabriz, and Tehran, although details remained limited.
Meanwhile, US President Donald Trump stated that he would urge Israeli Prime Minister Benjamin Netanyahu to avoid retaliatory action following Iran’s missile attacks, which were launched in response to an earlier strike near Beirut. The heightened geopolitical uncertainty has boosted demand for safe-haven assets, lending additional support to the US Dollar.
The Greenback also benefited from stronger-than-expected US labor market data. The US economy recorded a third consecutive month of solid job growth in May, with Nonfarm Payrolls increasing by 172,000, exceeding market expectations of 85,000. The previous month’s figure was revised up to 179,000. At the same time, the unemployment rate held steady at 4.3%, matching forecasts.
Following the jobs report, investors significantly increased their expectations for further Fed tightening. Market pricing now implies more than a 70% chance of a rate hike in December, up sharply from roughly 45% a week earlier.
Commenting on the data, Capital Economics Chief Markets Economist Jonas Goltermann noted that the latest payroll figures suggest the US labor market continues to strengthen despite elevated energy prices. He added that this backdrop increases the likelihood of Fed policy tightening, with Capital Economics now expecting the Federal Open Market Committee (FOMC) to deliver two 25-basis-point rate hikes before year-end.
The Nasdaq 100 finished the week with a notably bearish candlestick pattern, largely driven by Friday’s sharp sell-off following the latest employment data. Investors reacted to concerns that the strong jobs report could prompt the Federal Reserve to maintain elevated interest rates for an extended period. Higher borrowing costs tend to weigh on growth-oriented sectors, particularly technology stocks. However, the longer-term outlook remains supported by ongoing enthusiasm for the technology sector and the artificial intelligence trend. If these structural growth drivers remain intact, the Nasdaq 100 may eventually recover and resume its upward trajectory.
Some additional downside momentum could emerge in the near term given the market’s weak weekly close. However, the 28,500 level remains an important area to monitor. If the Nasdaq 100 manages to hold above this support zone, it may present an attractive opportunity for buyers to re-enter the market. Conversely, a sustained move below 28,500 could increase selling pressure and pave the way for a decline toward the 26,000 level.
USD/MXN
The US Dollar strengthened against the Mexican Peso over the course of the week, although the 17.50 area continues to act as a significant resistance level. The key question is whether this barrier can remain intact. With the pair likely to challenge this level again as trading resumes, a breakout is certainly possible. Even so, any gains beyond 17.50 may be limited, with the 18.00 level representing a likely upside target. Mexico’s substantially higher interest rates continue to provide strong support for the Peso, making it difficult for USD/MXN to sustain a more pronounced rally.
If the US Dollar begins to gain significant upward momentum against the Mexican Peso, it may be more attractive to take long Dollar positions against other currencies instead. This is because holding a long USD/MXN position can involve substantial swap or carry costs, which may reduce the overall appeal of the trade despite any potential appreciation in the Dollar.
Gold
Gold came under heavy selling pressure, a move that was not entirely unexpected after interest rates surged on Friday. The decline has pushed prices below the lower boundary of the hammer candlestick formed the previous week, signaling a notable deterioration in the technical outlook. This bearish development raises the risk of further downside. The 50-week EMA, currently located around the $4,270 level, represents a key support area. If gold falls below this threshold and selling momentum persists, the metal could experience a much deeper corrective move.
The current weakness in gold is largely tied to expectations that US interest rates will remain elevated for an extended period. Friday’s stronger-than-expected jobs report reinforced this view, leading investors to scale back hopes for near-term monetary easing. However, if bond yields begin to decline—particularly if the US 10-year Treasury yield falls below the 4.50% level—the pressure on gold could ease, potentially allowing the precious metal to stabilize and recover.
Silver
Silver has slipped below the key $70 level, an area that previously served as an important support zone. The metal is now testing its 200-day EMA on the daily chart, making this a critical point for traders to watch. A decisive break below this technical indicator could signal further weakness and increase the likelihood of a decline toward the $65 level, based on signals from the longer-term weekly chart analysis.
At this stage, silver’s outlook remains heavily dependent on a decline in US interest rates. Persistent high yields continue to weigh on the precious metal, limiting its ability to sustain upward momentum. From a technical perspective, the weekly chart shows three consecutive attempts to push higher that were ultimately rejected, a pattern that reflects weakening bullish sentiment. For silver to regain strength and reverse its recent downtrend, support from the bond market—particularly through lower Treasury yields—may be necessary.
USD/CHF
The US Dollar strengthened significantly during the week, surpassing the key 0.79 mark against the Swiss Franc. This move suggests that the pair could continue its upward momentum, potentially advancing toward the 0.81 level.
The interest rate outlook in the United States remained volatile, with yields rising following the latest employment data. This increase further widened the rate gap between the US and Switzerland, enhancing the appeal of the US Dollar. As a result, the pair is likely to maintain its upward trajectory. Any near-term declines could present buying opportunities, provided US Treasury yields remain elevated. However, if the 10-year Treasury yield falls significantly, particularly below 4.50%, the bullish outlook for the Dollar may begin to weaken.
USD/ZAR
The US Dollar advanced against the South African Rand during the week, climbing above the 16.50 level as US interest rates moved higher. While South Africa continues to maintain higher rates than the United States, the widening strength of US yields has narrowed the interest rate advantage. Despite the recent gains, market participants may be watching for signs that the rally is losing momentum, which could encourage renewed selling pressure on the pair.
If bullish momentum continues to build, the pair could extend its advance toward the 50-week EMA, which is currently located around the 16.91 level.
GBP/USD
The British Pound came under heavy pressure against the US Dollar during the week, which was not particularly surprising given the broad-based strength of the Greenback. The key question now is whether the 1.33 level can continue to act as a support zone. If it holds, buyers may attempt to stabilize the market, but a decisive break below this level could signal further downside ahead.
The 1.33 level has been a significant support area for an extended period and is likely to remain a key focus for traders. If the pair can find support and rebound from this zone, the British Pound could regain strength and stage a recovery against the US Dollar. However, maintaining this level will be crucial for preserving the broader bullish outlook.
USD/CAD
The US Dollar posted a strong advance against the Canadian Dollar, rising to test the key 1.3950 level. This price zone has served as an important area of support and resistance on multiple occasions, making it a significant point of interest for traders. With the pair closing near this level, it is reasonable to expect continued volatility and choppy price action as the market attempts to determine its next direction.
If US interest rates continue to move higher, the USD/CAD pair is likely to maintain its upward momentum, potentially targeting the 1.4150 level. Conversely, if Treasury yields begin to decline, the pair could come under pressure and retreat toward the 1.38 level. As a result, the direction of US interest rates is likely to remain a key driver of price action in the near term.
USD/JPY
The US Dollar ended the week by testing the critical ¥160 level against the Japanese Yen. This is a closely watched psychological and technical threshold, and its importance to market participants could lead to heightened volatility as traders assess whether the pair has enough momentum to break higher or if resistance will hold.
This is a level where the Bank of Japan has intervened in the past, making it an area that deserves close attention. If USD/JPY can break decisively above the ¥160.50 level, it could trigger a significant bullish breakout by surpassing a major swing high that has stood since 1990. Such a move would likely reinforce the pair’s long-term upward momentum. In the meantime, any short-term pullbacks are likely to be viewed as buying opportunities by traders looking to participate in the broader uptrend.
EUR/USD
The Euro came under significant pressure this week, largely driven by rising US interest rates and the resulting strength of the US Dollar. With that in mind, it will be important to watch whether the market moves down to test the 1.14 level. While a rebound from that area is certainly possible, patience may be warranted. Rather than buying immediately, it may be wiser to wait for a clear “V-shaped” recovery pattern to emerge on the chart, as this would provide stronger confirmation that bullish momentum is returning.
Given the current market conditions, I am content to remain on the sidelines and observe how trading develops on Monday before making any decisions. The market may provide clearer direction after the initial reaction to recent price movements and interest rate expectations.
The AUD/USD pair weakens to around 0.7120 during the early Asian trading hours on Friday. The Australian Dollar comes under pressure after Iranian officials stated that discussions in Washington had produced “no tangible progress,” dampening market sentiment. Meanwhile, support for the Aussie remains limited despite Reserve Bank of Australia (RBA) Governor Michele Bullock reiterating that policymakers are prepared to take whatever action is necessary to fulfill the central bank’s mandate.
The AUD/USD pair edges lower to around 0.7120 during the early Asian session on Friday as risk sentiment remains fragile amid ongoing tensions in the Middle East. Investors are also turning their attention to the US Nonfarm Payrolls (NFP) report for May, due later in the day.
Market caution intensified after Iran’s Foreign Minister, Abbas Araghchi, stated on Wednesday that there had been “no tangible progress” in efforts to end the conflict in the Middle East. He added that communication channels with Washington remain open but warned that any Israeli strike on Beirut as part of its campaign against Hezbollah could trigger a full-scale escalation involving the United States and Iran.
Traders are likely to keep a close eye on developments surrounding US-Iran negotiations. Persistent uncertainty or renewed geopolitical tensions could increase demand for safe-haven assets, supporting the US Dollar and weighing on the AUD/USD pair in the near term.
Meanwhile, the Australian Dollar found limited support from hawkish remarks by Reserve Bank of Australia (RBA) Governor Michele Bullock on Thursday. Bullock reiterated that the central bank remains firmly committed to bringing inflation back under control after delivering three interest-rate increases this year, which lifted the cash rate to 4.35%. She stressed that inflation remains uncomfortably high and emphasized that policymakers are prepared to take whatever measures are necessary to achieve price stability and full employment.
The US Dollar Index retreats as improving market sentiment follows reports that Israel and Lebanon agreed to renew their ceasefire on Wednesday.
Risk appetite remains tempered, however, after President Trump warned that the ceasefire could be scrapped if Iran-backed forces were responsible for the deaths of US troops.
The Greenback could regain momentum if robust US employment data for May strengthens expectations that the Federal Reserve will keep interest rates elevated or raise them further.
The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, remains under pressure after posting gains for three consecutive sessions, hovering near 99.50 during Thursday’s Asian trading hours.
The US Dollar softened as risk sentiment improved following news that Israel and Lebanon agreed on Wednesday to renew their ceasefire. The deal, reached after US-mediated talks in Washington, is contingent on a “complete cessation” of hostilities by Iran-backed Hezbollah.
Although Israel and Lebanon do not maintain formal diplomatic ties, both sides also agreed to establish several pilot security zones where the Lebanese Armed Forces will exercise exclusive control, preventing the presence of non-state armed groups.
However, the improvement in market sentiment remained limited. According to reports from the Wall Street Journal, US President Donald Trump told advisers he could reconsider the ceasefire arrangement if Tehran were responsible for the deaths of US troops. Trump maintained that the week-long suspension of airstrikes remains in effect despite continued clashes in the region. He also indicated in an interview with the New York Post that a blockade extending through Labor Day remains a possibility, potentially delaying expectations for the reopening of the Strait of Hormuz.
Meanwhile, the Greenback could find renewed support as investors increasingly anticipate that the Federal Reserve may tighten monetary policy further this year. Better-than-expected US labor market indicators, including May’s ADP private employment figures and JOLTS job openings data, reinforced confidence in the resilience of the US economy and strengthened the case for higher interest rates for a longer period.
Market expectations have shifted notably as the ongoing conflict involving Iran continues to disrupt energy markets, lifting oil prices and fueling inflationary pressures. According to the CME FedWatch Tool, traders are now pricing in roughly a 42% probability of a Federal Reserve rate hike by December.
USD/CHF moves lower as the US Dollar comes under pressure amid improving market sentiment following the renewal of the Israel-Lebanon ceasefire on Wednesday. However, the Greenback could find support from robust May employment figures, which have reinforced expectations that the Federal Reserve may keep tightening monetary policy. Meanwhile, Swiss National Bank President Martin Schlegel recently stated that the SNB remains prepared to intervene if tensions in the Middle East drive excessive appreciation of the Swiss Franc.
USD/CHF snapped its three-session advance and traded near 0.7910 during Thursday’s Asian session as the US Dollar weakened amid improving risk sentiment. Market appetite for risk increased after Israel and Lebanon agreed to renew their ceasefire on Wednesday, although the deal remains conditional on a complete halt to hostilities by the Iran-backed Hezbollah group. The agreement followed US-mediated discussions in Washington.
Despite the absence of formal diplomatic ties between the two countries, both sides also agreed to create several pilot security zones where the Lebanese armed forces would assume sole authority, excluding all non-state actors from those areas.
However, losses in USD/CHF may remain limited as the US Dollar could regain support from growing expectations that the Federal Reserve will tighten monetary policy further this year. Strong US labor market indicators, including May’s ADP private employment report and JOLTS job openings data, reinforced confidence in the resilience of the economy and encouraged speculation that interest rates may stay elevated for longer.
At the same time, the ongoing conflict involving Iran has continued to disrupt energy markets, pushing oil prices higher and intensifying inflation concerns. Reflecting this shift in sentiment, the CME FedWatch Tool now indicates roughly a 42% chance of a Fed rate hike in December.
Meanwhile, Martin Schlegel, Chairman of the Swiss National Bank, stated that the Swiss Franc’s real overvaluation is considerably less pronounced than its nominal overvaluation. He also emphasized that the SNB stands ready to increase its foreign-exchange market interventions if heightened Middle East tensions trigger excessive safe-haven demand for the Swiss Franc.
USD/JPY pulls back from a more than one-month peak reached on Thursday, although selling pressure remains limited. The US Dollar faces headwinds following the Israel–Lebanon ceasefire, while concerns over potential Japanese intervention also weigh on the pair. Nevertheless, the broader technical picture remains constructive, suggesting traders should be cautious about anticipating a deeper corrective decline.
The USD/JPY pair edged lower during Thursday’s Asian trading session as speculation grew that Japanese authorities could once again intervene to support the Japanese Yen (JPY). At the same time, the ceasefire between Israel and Lebanon encouraged traders to lock in profits on US Dollar (USD) positions, adding downward pressure to the pair.
Despite the pullback, selling momentum remains limited, with the pair continuing to trade near the key 160.00 level and close to a one-month peak reached earlier in the day. Concerns about the broader economic impact of tensions in the Middle East have discouraged aggressive Yen buying. Meanwhile, lingering uncertainty surrounding US-Iran negotiations and expectations that the US Federal Reserve (Fed) will maintain a hawkish stance continue to underpin the USD, helping to cushion losses in USD/JPY.
From a technical standpoint, the pair maintains a positive near-term outlook within a rising channel pattern. The channel’s lower boundary aligns closely with the 200-period Simple Moving Average (SMA), which provided support on Wednesday. The Relative Strength Index (RSI) remains above its midpoint, signaling mild bullish momentum, while the Moving Average Convergence Divergence (MACD) has flattened slightly below zero.
These indicators suggest the uptrend may be slowing rather than reversing. Consequently, any short-term decline could attract renewed buying interest around the important support zone near 159.45. However, a decisive break below this area could trigger additional technical selling and open the door for a deeper correction. As long as the pair holds above the 159.44 support region, the broader bullish bias remains intact, with a move toward the upper boundary of the channel near 160.14 continuing to be the favored scenario.
USD/CAD edges higher as risk-off sentiment leaves the Canadian Dollar unable to benefit from stronger crude oil prices. WTI crude extends gains after Iran launched unsuccessful ballistic missile attacks on Kuwait and Bahrain, heightening concerns over Middle East supply disruptions. Meanwhile, the US Dollar strengthens as fears surrounding a potential Strait of Hormuz closure fuel inflation worries and reinforce expectations that the Fed could keep interest rates higher for longer.
USD/CAD trades modestly higher around 1.3850 during Wednesday’s Asian session after posting slight losses in the previous session. The commodity-linked Canadian Dollar (CAD) remains subdued despite a continued rise in crude oil prices, as heightened market risk aversion keeps traders cautious and limits demand for risk-sensitive currencies.
West Texas Intermediate (WTI) crude extends its rally for a third straight session, hovering near $92.60 per barrel at the time of writing. Oil prices surged following renewed tensions in the Middle East after Iran launched ballistic missiles toward Kuwait and Bahrain. According to reports, the US Central Command (CENTCOM) intercepted the missile and drone attacks while carrying out self-defense strikes on Iran’s Qeshm Island.
Concerns over a prolonged closure of the Strait of Hormuz have intensified fears of wider energy supply disruptions, potentially fueling global inflation pressures. This environment continues to strengthen expectations that the Federal Reserve (Fed) will keep interest rates elevated for longer, providing additional support to the US Dollar (USD). The higher-for-longer rate outlook is also backed by resilient US economic data, with the May 2026 ISM Manufacturing PMI rising to 54.0 from 52.7 and exceeding market forecasts to mark the strongest expansion in factory activity since May 2022.
Further signs of economic resilience emerged from the labor market, as April JOLTS job openings climbed to a near two-year high of 7.61 million while layoffs declined. With both manufacturing and employment indicators remaining firm, investors are now turning their focus to Friday’s Nonfarm Payrolls report for further insight into the future direction of Fed monetary policy.
US Dollar Index remains steady as uncertainty over a potential US-Iran deal intensifies.
The US Dollar Index stays flat near 99.25 as uncertainty surrounding a potential US-Iran deal continues to rise. Renewed attacks between Washington and Tehran have revived concerns over a possible escalation in the Middle East conflict. Meanwhile, investors are turning their focus to upcoming US economic releases, including the ADP Employment Change, ISM Services PMI, and May’s Nonfarm Payrolls report.
The US Dollar (USD) traded in a subdued manner during Wednesday’s Asian session, despite rising uncertainty over a potential United States-Iran agreement after both sides exchanged attacks.
At the time of writing, the US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, was little changed around 99.25.
On Tuesday night, the US Central Command (CENTCOM) announced it had intercepted multiple Iranian missile and drone strikes aimed at regional allies such as Kuwait and Bahrain, while also launching defensive operations against targets on Iran’s Qeshm Island.
The developments have reignited concerns over a renewed Middle East conflict, a situation that could drive oil prices higher and provide further support for the US Dollar.
Historically, the Greenback tends to strengthen during periods of geopolitical tension, as rising energy prices fuel inflation pressures and reduce expectations for aggressive Federal Reserve (Fed) rate cuts.
On the economic front, traders are awaiting the release of the US ADP Employment Change report and the ISM Services Purchasing Managers’ Index (PMI) for May during the North American session.
Meanwhile, Tuesday’s US JOLTS Job Openings report for April exceeded forecasts, showing 7.618 million available positions versus market expectations of 6.88 million.
Attention now turns to Friday’s US Nonfarm Payrolls (NFP) report for May, which is expected to be the key catalyst for the US Dollar this week.
New Zealand Dollar strengthens after upbeat China PMI data, ending a two-day decline against the US Dollar.
NZD/USD gains traction on Wednesday, supported by a mix of positive catalysts. Stronger-than-expected China Services PMI data and the Reserve Bank of New Zealand’s hawkish stance underpin the Kiwi, while a softer US Dollar adds further support. However, ongoing geopolitical tensions may help limit broader USD weakness and restrain additional upside for the pair.
The NZD/USD pair moved higher during Wednesday’s Asian session, climbing toward the 0.5935 area after stronger-than-expected China Services PMI data boosted market sentiment. The pair appears to have ended a two-day losing streak, although ongoing geopolitical tensions could limit further upside.
Data released by RatingDog showed China’s Services PMI rising to 54.4 in May from 52.6 previously, beating market expectations of 52.3 and marking the fastest expansion in three months. The upbeat figures supported antipodean currencies, including the New Zealand Dollar.
Additional support for the Kiwi came from the Reserve Bank of New Zealand’s (RBNZ) unexpectedly hawkish stance and softer demand for the US Dollar. The RBNZ signaled a strong likelihood of a 25-basis-point rate hike at its July 8 meeting and projected the Official Cash Rate (OCR) could climb to around 2.85% by year-end, suggesting as many as three further hikes.
By contrast, markets currently see only a little more than a 50% chance of one additional rate increase from the US Federal Reserve (Fed) this year. Combined with uncertainty surrounding US-Iran negotiations, this has weighed on the Greenback and supported NZD/USD.
Meanwhile, geopolitical risks remain elevated. Reports indicated that US forces intercepted Iranian missile and drone attacks targeting regional allies while carrying out defensive strikes on Iran’s Qeshm Island. US Secretary of State Marco Rubio also stated that sanctions relief for Iran would depend on Tehran abandoning enriched uranium activities.
In addition, US President Donald Trump announced an open-ended extension of the ceasefire alongside the continuation of a US blockade until negotiations are resolved. The persistent geopolitical uncertainty could continue supporting the US Dollar and cap gains for NZD/USD.
Investors now await the US ADP private employment report and the ISM Services PMI data later in the North American session for fresh market direction.
EUR/USD edges higher around 1.1635 in early Tuesday Asian trading. However, fresh geopolitical tensions in the Middle East may pressure the euro as a risk-sensitive currency. Meanwhile, ECB’s Schnabel cautioned that such shocks can no longer be overlooked.
EUR/USD posts modest gains near 1.1635 in early Tuesday Asian trading, though upside momentum may remain capped amid rising geopolitical risks. Iran’s announcement to halt indirect talks with the US and fully close the Strait of Hormuz has heightened risk-off sentiment, potentially supporting safe-haven flows into the US dollar.
Meanwhile, preliminary Eurozone HICP data is due later on Tuesday and may provide fresh direction for the pair.
According to CNBC, Iranian negotiators will stop communicating with the US via intermediaries and move to close the Strait of Hormuz in response to alleged ceasefire violations. US President Donald Trump said he urged Israeli Prime Minister Benjamin Netanyahu to avoid a major strike on Beirut, claiming Israeli forces were pulled back. However, Netanyahu disputed this, stating that operations against Hezbollah in southern Lebanon will continue.
Escalating tensions in the Middle East could strengthen the US dollar as a safe-haven asset, weighing on EUR/USD.
On the European side, the euro may find some support from the ECB’s relatively hawkish tone. ECB Executive Board member Isabel Schnabel noted that inflationary pressures linked to the Iran conflict can no longer be ignored, as price increases are broadening beyond energy and inflation expectations risk becoming unanchored.
International investors and governments increased their holdings of U.S. Treasury securities to an all-time high of $9.49 trillion in February 2026, with holdings rising $587 billion year-over-year and nearly $200 billion in a single month.
Central banks continued accumulating gold, adding 244 tonnes during the first quarter of 2026 and extending a buying streak that has lasted 17 months. However, because gold is traded globally in U.S. dollars, this trend still reinforces the dollar’s central role in the financial system.
The United Arab Emirates’ decision to withdraw from OPEC/OPEC+ came shortly after U.S. officials endorsed a potential emergency dollar liquidity arrangement for Abu Dhabi, highlighting the strategic influence of dollar-based financial support.
U.S. sanctions efforts against Iran have successfully frozen $344 million worth of cryptocurrency assets, illustrating how digital financial infrastructure linked to the dollar can strengthen U.S. economic enforcement power.
Overall, evidence from Treasury market demand, rising foreign capital inflows, and expanding digital-dollar adoption suggests that predictions of the dollar’s decline are not supported by current data.
For years, predictions of the US dollar’s decline have dominated headlines, and those claims have only grown louder. Critics argue that BRICS nations are creating a viable alternative to the dollar, China is reducing its holdings of US Treasuries, gold is poised to replace the dollar as the world’s primary reserve asset, and the US government is struggling to attract buyers for its mounting debt—so much so that it is allegedly using dollar swap lines with Gulf nations as an indirect liquidity support mechanism.
While these arguments make for a compelling narrative, the underlying data tells a different story. Despite the persistent warnings from dollar skeptics, there is little evidence to suggest that the dollar’s dominant role in the global financial system is meaningfully eroding.
The dollar’s dominance is far from disappearing. If anything, the developments seen in late April 2026 provided one of the strongest pieces of evidence in years that its position in the global financial system remains firmly intact.
Theory vs. Reality
For years, I’ve argued that the “dollar collapse” narrative mistakenly equates inflation with currency debasement. Those are not the same thing. A currency cannot realistically be considered debased when global demand for it continues to intensify. We’ve explored this rebasement perspective before in our discussions of the dollar’s global funding system and in The Dollar’s Death Is Greatly Exaggerated. The latest figures only strengthen the case that the U.S. dollar remains firmly dominant.
The most recent Treasury International Capital (TIC) report from the U.S. Treasury, released on April 15 and covering February 2026 activity, showed foreign investors purchased $101 billion of long-term U.S. securities in a single month. Total net TIC inflows reached $184.5 billion, while foreign investors also increased their Treasury bill holdings by another $91.6 billion. As a result, foreign ownership of U.S. Treasuries climbed to a record $9.49 trillion in February, rising by $198 billion during the month and by $587 billion over the previous year.
Even that record figure understates the true scale of foreign demand. It excludes Treasury exposure held through U.S.-based hedge funds and the Cayman Islands basis trade. According to Federal Reserve estimates, these channels account for roughly an additional $1.5 trillion of effective foreign demand. When those positions are included, total foreign-linked exposure to U.S. Treasuries approaches $11 trillion, underscoring the continued global appetite for dollar-denominated assets.
Looking beyond the total amount of debt outstanding, the flow data paints the same picture. Indirect bidders—widely viewed as a gauge of foreign demand—have consistently accounted for more than 70% of successful bids in recent Treasury auctions. Meanwhile, bid-to-cover ratios for both 10-year and 30-year Treasury sales have remained above 2.5 through multiple market cycles, signaling robust investor appetite.
If the world were genuinely abandoning the dollar, the evidence would look very different: weaker auction participation, higher yields caused by poorly received offerings, and a rising term premium as investors demanded greater compensation to absorb excess supply. Yet the data points in the opposite direction. Despite the U.S. running approximately $2.5 trillion in deficits over the past year, global investors have continued to absorb the resulting Treasury issuance with little difficulty.
Far from resembling a rush for the exits, these trends suggest exceptionally strong demand. In fact, they point to one of the most powerful and persistent periods of global demand for U.S. government debt ever recorded.
How Central Bank Gold Purchases Strengthen the Dollar’s Position
This is where many dollar-collapse narratives begin to break down. Gold advocates often make a fundamental mistake by treating central bank gold accumulation as proof that the world is abandoning the U.S. dollar. The reality is more nuanced.
There is no dispute that central banks have been aggressively increasing their gold reserves. According to the World Gold Council’s Q1 2026 Gold Demand Trends report, released on April 29, official-sector institutions purchased a net 244 tonnes of gold during the first quarter alone, a 3% increase from the same period a year earlier. That marked the seventeenth consecutive month of net central bank buying, despite gold prices surpassing $5,400 per ounce in January. Physical gold demand reached 474 tonnes during the quarter, making it the second-strongest first quarter on record. Looking ahead, the World Gold Council expects central banks to purchase approximately 850 tonnes of gold throughout 2026, broadly matching 2025 levels and extending a multi-year trend of substantial accumulation.
The trend is both genuine and important. However, interpreting it as evidence of a mass exodus from the dollar is a leap that the data does not support. Central banks are adding gold primarily as a reserve diversifier and geopolitical hedge, not as a replacement for the dollar-based financial system. Gold can store value, but it cannot replicate the liquidity, collateral function, settlement infrastructure, or global financing role provided by U.S. Treasury securities and dollar-denominated markets.
In other words, rising gold reserves and continued dollar dominance are not mutually exclusive. Central banks can accumulate gold while still relying heavily on dollars for trade settlement, reserve management, cross-border financing, and international liquidity. The growth of official gold holdings reflects diversification at the margin—not a practical abandonment of the world’s primary reserve currency.
A key point often overlooked in de-dollarization debates is that gold itself remains deeply embedded within the dollar-based financial architecture. Gold may be a reserve asset, but it is still primarily valued through a dollar lens. The London Bullion Market Association (LBMA) benchmark—the global standard used to value central bank gold holdings—is quoted in U.S. dollars per ounce. Whether it is the People’s Bank of China, the National Bank of Poland, or the Reserve Bank of India increasing its gold reserves, those holdings are ultimately measured, reported, and assessed in dollar terms.
The same principle applies when central banks use gold as a source of liquidity. Whether through swaps, repurchase agreements, or outright sales, transactions are typically priced against dollar benchmarks. Gold and dollars are therefore not competing monetary systems operating independently of one another. Rather, gold functions as a reserve asset within a broader framework that is still largely organized around the U.S. dollar.
This distinction fundamentally changes how central bank gold purchases should be interpreted. If a central bank reallocates 5% of its reserves from U.S. Treasuries into gold, that does not constitute an exit from the dollar system. It is simply a portfolio adjustment within a reserve structure where assets continue to be valued and compared using dollar-based metrics. The same logic applies to gold swaps conducted through the Bank for International Settlements, yuan-denominated contracts traded on the Shanghai Gold Exchange, and even the large gold accumulation programs undertaken by Central Bank of the Russian Federation before sanctions. Regardless of the transaction venue or currency of quotation, reserve managers still evaluate those positions against their dollar-equivalent value.
Viewed through that lens, growing gold reserves do not necessarily undermine dollar dominance. In many respects, they reinforce it by relying on the dollar as the world’s primary unit of account for reserve wealth.
The same surveys frequently cited as evidence of de-dollarization illustrate this nuance. While many central banks expect the dollar’s share of reserves to gradually decline over the coming years, actual reserve data tells a more measured story. According to the IMF’s COFER statistics for the fourth quarter of 2025, the U.S. dollar accounted for roughly 56.8% of allocated global foreign-exchange reserves. Although lower than the levels seen decades ago, that share remained broadly stable, with much of the quarter-to-quarter movement attributable to exchange-rate fluctuations rather than aggressive reserve liquidation.
At the end of 2025, total global foreign-exchange reserves stood above $13 trillion. Within that pool, the dollar remained by far the dominant reserve currency, holding a share that exceeded the combined weight of every major competitor except the euro. The euro represented roughly one-fifth of allocated reserves, while the Japanese yen and British pound each accounted for about 5%. Despite persistent discussion of its rise, the Chinese yuan continued to represent only a small fraction of global reserve holdings.
The broader takeaway is that reserve diversification and de-dollarization are not synonymous. Central banks may seek greater exposure to gold or other currencies, but the available data still points to a global reserve system in which the dollar remains the primary benchmark, funding currency, and store of international liquidity.
Bessent’s Dollar Swap Strategy Expands Dollar Dominance
Recent discussions surrounding potential new dollar swap lines have provided another example of how U.S. policymakers are working to reinforce, rather than merely defend, the dollar’s global position.
Treasury Secretary Scott Bessent has recently floated the idea of extending dollar swap arrangements to key partners in the Persian Gulf and Asia, with the United Arab Emirates frequently mentioned as a leading candidate. Critics have interpreted the proposal as an emergency measure designed to prevent foreign holders from selling U.S. Treasuries amid geopolitical tensions in the Middle East. However, that interpretation overlooks the broader strategic objective.
Bessent’s own comments suggest a different motivation. He has emphasized that swap lines help maintain stability in dollar funding markets and reduce the risk of disorderly asset sales during periods of stress. More importantly, he has argued that expanding swap-line networks can strengthen international dollar usage and create additional dollar funding hubs across strategically important regions.
At its core, this approach is about infrastructure. Dollar swap lines are one of the most powerful tools available for extending the reach of the global dollar system. During the 2008 financial crisis, swap lines were deployed primarily as a defensive measure, providing dollar liquidity to foreign central banks and preventing disruptions in global funding markets. The emerging strategy seeks to use the same mechanism more proactively by deepening the dollar’s presence in regions where competing financial architectures have been gaining attention.
The logic is straightforward. When a central bank receives permanent or highly reliable access to dollar liquidity through a swap arrangement, its domestic financial institutions gain confidence that dollars will remain available during periods of market stress. That assurance strengthens incentives to continue conducting trade, financing, and reserve management activities in dollars rather than investing heavily in alternative systems.
From a network perspective, every new swap line effectively creates another node within the global dollar ecosystem. Countries connected to these facilities become more deeply integrated into dollar funding markets, increasing the currency’s utility and reinforcing its network effects. This dynamic helps explain why existing swap-line arrangements among the United States, the European Central Bank, Japan, United Kingdom, Canada, and Switzerland have remained central pillars of the international monetary system since the global financial crisis.
Viewed through this lens, proposed Gulf and Asian swap lines are less about preventing a collapse in Treasury demand and more about extending the geographical footprint of the dollar system. Rather than signaling weakness, they represent an effort to strengthen the institutional infrastructure that underpins the dollar’s reserve-currency status and global liquidity role.
The broader implication is that dollar dominance is sustained not only by the size of the U.S. economy or the Treasury market, but also by the network of financial relationships that make dollars readily available around the world. Swap lines are one of the clearest examples of how that network continues to expand.
More importantly, this strategy is no longer merely theoretical. Advocates argue that Treasury Secretary Scott Bessent has already demonstrated the model in practice through a swap facility extended to Argentina in 2025. The objective was straightforward: provide dollar liquidity to a strategic partner during a period of political uncertainty, stabilize financial conditions, and reinforce that country’s integration into the global dollar system. The reported repayment of the facility within a relatively short period strengthened the case that such arrangements can function as effective tools of financial diplomacy rather than permanent rescue programs.
Under this framework, swap lines serve as an incentive mechanism. They offer trusted partners access to the world’s deepest pool of liquidity and strengthen their ties to dollar-based funding markets. Proposed arrangements with Gulf states and Asian economies can therefore be viewed as efforts to expand the geographic reach of the dollar network rather than emergency measures aimed at defending Treasury demand.
At the same time, the United States retains a second source of influence: its ability to enforce financial restrictions through sanctions, regulatory oversight, and control of key financial infrastructure. In this interpretation, dollar dominance is supported by both incentives and enforcement. Countries gain significant benefits from participating in the dollar system, but they are also aware of the costs associated with operating outside it.
Recent actions targeting Iranian financial networks illustrate this point. Through sanctions programs administered by the Office of Foreign Assets Control and other agencies, the U.S. government continues to demonstrate its capacity to restrict access to international financial channels and freeze assets connected to sanctioned entities. These measures highlight the extent to which global finance remains intertwined with institutions, payment systems, and compliance frameworks linked to the dollar.
The implications extend beyond traditional banking. Cryptocurrencies and stablecoins are often portrayed as alternatives to the existing monetary order, but many of the largest digital-asset ecosystems remain dependent on regulated exchanges, custodians, issuers, and financial intermediaries. As a result, authorities can frequently exercise influence through compliance requirements and enforcement actions, limiting the extent to which these networks operate entirely outside government oversight.
From this perspective, dollar dominance is reinforced through two complementary forces. The first is attraction: deep capital markets, abundant liquidity, reserve-currency status, swap-line access, and the global demand for U.S. Treasury securities. The second is enforcement: sanctions authority, asset freezes, financial blacklists, and regulatory reach. Together, these mechanisms create powerful incentives for governments, banks, and reserve managers to remain connected to the dollar ecosystem.
This does not mean that countries are abandoning efforts to diversify reserves or reduce specific vulnerabilities. Many continue to increase gold holdings, explore alternative payment arrangements, and spread custodial risk across jurisdictions. However, diversification is not the same as disengagement. For many reserve managers, the calculation remains that participation in the dollar-centered financial system offers benefits and stability that are difficult to replicate elsewhere, even as they seek greater flexibility around the margins.
The UAE’s Exit and the De-Dollarization Debate
Supporters of the dollar-dominance thesis point to recent developments in the Gulf as evidence that financial influence often matters as much as formal reserve statistics. In their view, the reported decision by the United Arab Emirates to distance itself from the traditional OPEC framework came at a strategically significant moment, coinciding with discussions about closer financial cooperation with Washington.
The argument focuses on sequence and incentives. During a period of heightened regional uncertainty and financial stress, U.S. policymakers discussed expanding dollar liquidity support to key partners. At the same time, senior UAE officials engaged with representatives from the U.S. Treasury, the International Monetary Fund, and the Federal Reserve System. Proponents of this interpretation argue that access to dollar liquidity, security cooperation, and deeper integration into U.S.-led financial networks created powerful incentives for closer alignment with the dollar-based system.
From that perspective, swap lines are not simply emergency funding mechanisms. They are strategic tools that deepen economic ties and strengthen the network effects that support the dollar’s global role. The broader claim is that countries offered reliable access to dollar liquidity have fewer incentives to build alternative financial architectures around competing currencies.
As a result, advocates argue that this episode weakens the long-running “petroyuan” narrative. Rather than seeing a major Gulf economy move toward a yuan-centered energy pricing system, they see another example of a strategically important state reinforcing its links to the dollar ecosystem.
Counterargument: Does De-Dollarization Still Matter?
The strongest de-dollarization case remains a serious one. Following the freezing of roughly $300 billion of Russian reserves in 2022, many governments concluded that reserve assets held within Western financial systems carried political and geopolitical risks. This prompted efforts to diversify reserve management practices, expand local-currency trade arrangements, accumulate gold, and explore alternatives to traditional dollar settlement networks.
Examples frequently cited include growing cooperation among BRICS members, increased bilateral trade settlement between China and Russia, and shifts in custodial arrangements for foreign-exchange reserves. These developments are real and reflect an ongoing desire among some countries to reduce exposure to potential sanctions risk.
However, supporters of the dollar-dominance view argue that these changes have largely occurred within the existing financial architecture rather than outside it. Moving Treasury holdings from direct custody in the United States to institutions such as Euroclear changes where assets are held, but not necessarily what assets are held. Likewise, increasing bilateral trade settlement in yuan or other currencies does not automatically create a viable alternative to the broader dollar-based system.
The core challenge for de-dollarization remains scale. A reserve currency must provide deep and liquid capital markets, a large supply of high-quality collateral, broad convertibility, legal protections, and global acceptance. While alternatives have made incremental gains, none have yet matched the combination of liquidity, market depth, and network effects that support the dollar.
As a result, the debate today is less about whether diversification is occurring—it clearly is—and more about whether diversification at the margins is sufficient to fundamentally reshape the global monetary system. Thus far, the evidence suggests gradual evolution rather than a rapid displacement of the dollar’s central role.
The key mistake in many de-dollarization arguments is treating diversification as if it were abandonment. Those are not the same thing. Foreign reserve managers are increasingly diversifying where they hold assets and expanding allocations to gold, but neither trend necessarily implies a departure from the dollar-centered financial system.
In practice, many central banks are pursuing two parallel objectives. First, they are reducing custodial concentration by spreading reserve assets across multiple jurisdictions and institutions. Second, they are increasing gold holdings as a hedge against geopolitical and financial uncertainty. Yet these adjustments leave the dollar largely intact as the world’s primary unit of account, dominant settlement currency, and leading reserve asset. Reserve composition may be evolving at the margins, but the underlying structure of the system remains remarkably stable.
The dollar’s influence is also expanding through channels that traditional reserve statistics often fail to capture. One of the most important developments is the rapid growth of dollar-denominated digital assets across emerging markets. In regions such as Latin America, Africa, and Southeast Asia, stablecoins have become increasingly popular as tools for savings, payments, and access to dollar exposure where local currencies face inflation or volatility.
A notable example is Tether, the issuer of the USDT stablecoin. According to the company’s first-quarter 2026 attestation, it held approximately $141 billion in direct and indirect exposure to U.S. Treasury securities as of March 31, supported by total assets of roughly $191.8 billion against liabilities of $183.5 billion. The company also reported a reserve surplus exceeding $8 billion and more than $1 billion in quarterly profit.
These figures are significant because they illustrate how digital-dollar adoption can generate additional demand for U.S. government debt. Stablecoin issuers typically back their tokens with highly liquid dollar assets, including Treasury bills and other short-term government securities. As stablecoin usage grows internationally, so does the indirect demand for dollar-denominated reserves.
Viewed through this lens, digital finance may be reinforcing rather than weakening the dollar’s global position. Instead of replacing the dollar, many of the most widely used digital assets effectively extend the reach of dollar liquidity into markets that previously had limited access to traditional banking infrastructure.
The broader implication is that the future of dollar dominance may not depend solely on central-bank reserve allocations. Increasingly, it may also be shaped by private-sector demand for digital dollars, cross-border payment networks, and new forms of dollar-based financial infrastructure that continue to expand the currency’s global footprint.
The dollar’s reach is increasingly extending beyond traditional banking and central-bank reserves into the digital economy. Supporters of the dollar-dominance thesis argue that this trend is particularly visible in emerging markets, where dollar-linked stablecoins are becoming a preferred vehicle for savings, payments, and wealth preservation.
Recent growth in USDT circulation illustrates the scale of that demand. As the supply of dollar-pegged stablecoins continues to expand, issuers accumulate larger holdings of U.S. Treasury securities and other dollar-denominated assets to back those tokens. In effect, every new digital dollar created generates additional demand for the underlying dollar-based financial infrastructure.
The trend is especially pronounced across parts of Latin America, Africa, and Southeast Asia, where concerns about local currency volatility have encouraged users to hold digital dollars instead of local cash balances. Some industry reports have described this phenomenon as “digital dollarization”—a process in which individuals gain access to dollar exposure through blockchain networks rather than through traditional bank accounts.
From a monetary perspective, this is an important distinction. Many observers originally viewed cryptocurrencies as potential competitors to the dollar. Yet the fastest-growing segment of the digital asset market has often been dollar-backed stablecoins rather than non-sovereign alternatives. As a result, blockchain adoption in many regions has expanded demand for dollar-linked assets rather than displaced them.
Regulatory developments further reinforce this dynamic. The implementation of stablecoin legislation and enhanced compliance requirements has increasingly tied major issuers to the existing financial system. Requirements that reserves be backed by high-quality liquid assets—primarily short-term U.S. government securities—strengthen the connection between stablecoin growth and Treasury demand.
At the same time, regulatory oversight gives authorities greater visibility and enforcement capability within digital-dollar networks. Compliance obligations imposed on issuers, exchanges, and custodians allow regulators to block, freeze, or restrict assets associated with sanctioned entities when required by law. This means that large portions of the stablecoin ecosystem operate not outside the traditional financial system, but as an extension of it.
Viewed through this lens, digital dollars may represent one of the newest channels through which dollar dominance is being reinforced. Rather than creating a parallel monetary order, stablecoins are increasingly embedding dollar liquidity, Treasury demand, and regulatory reach into global digital payments networks.
The broader takeaway is that the future of dollar dominance may depend not only on central banks and sovereign reserves, but also on millions of individuals and businesses choosing to hold digital representations of dollars. If that trend continues, the dollar’s influence could become even more deeply integrated into everyday economic activity around the world.
What This Means for Investors
If the dollar-dominance thesis is correct, the investment implications extend across bonds, equities, gold, and digital-finance infrastructure.
First, persistent foreign demand for U.S. Treasuries suggests ongoing support for the long end of the yield curve, even amid large federal deficits. Strong international demand can help absorb increased issuance and potentially moderate upward pressure on long-term interest rates. From that perspective, duration exposure may offer more value than many deficit-focused forecasts imply.
Second, central-bank gold accumulation appears to be creating a stronger structural foundation for gold prices than existed in previous cycles. That does not necessarily make gold a substitute for fiat currencies. Rather, it reinforces gold’s role as a portfolio diversifier, inflation hedge, and geopolitical-risk buffer. Investors may benefit from maintaining strategic gold exposure, but the argument is increasingly about diversification rather than preparing for the collapse of the monetary system.
Third, the expansion of digital-dollar infrastructure is creating new investment opportunities across payments, custody, and financial technology. Companies such as CRCL, COIN, V, MA, JPM, and BK operate at the intersection of traditional finance and emerging digital-dollar networks, positioning them to benefit if stablecoin adoption continues to grow globally.
The contrarian takeaway is that many investors who positioned heavily for an imminent dollar collapse may have missed some of the strongest-performing asset classes of the past several years. U.S. equities continued to attract capital, Treasury securities remained central to global reserve portfolios, and the broader dollar-based financial system proved more resilient than many critics anticipated.
This does not mean investors should ignore risks. Fiscal deficits, rising debt-service costs, geopolitical tensions, sanctions-related fragmentation, and potential competition from future central bank digital currencies all deserve close attention. These factors could influence the dollar’s long-term trajectory and should remain part of any serious macroeconomic analysis.
However, the evidence presented by proponents of the dollar-dominance view points to a different conclusion than the popular collapse narrative. Foreign demand for Treasuries remains robust. Central banks continue to buy gold while largely operating within a dollar-priced reserve framework. Swap lines are being used to deepen dollar liquidity networks. Stablecoins and digital-dollar platforms are expanding dollar access across emerging markets.
Taken together, these trends suggest that the dollar is not disappearing from the global financial system. Rather, it is adapting to new technologies, new payment channels, and new geopolitical realities while retaining many of the advantages that have supported its dominance for decades.
For investors, the practical lesson is not necessarily to bet exclusively on the dollar, but to recognize that many of the world’s most important financial markets, reserve assets, payment networks, and digital-finance platforms remain deeply connected to the dollar ecosystem. Understanding that infrastructure may prove more valuable than betting on its imminent collapse.
The British Pound experienced choppy trading throughout the week, with price action characterized by frequent swings in both directions. Despite the volatility, the 1.3550 level continues to act as a significant resistance zone. However, momentum suggests that it may only be a matter of time before the pair makes another attempt to challenge that area.
A decisive break above the 1.3550 resistance level could pave the way for further gains, potentially driving the pair toward the 1.3700 mark. For now, the broader uptrend remains intact, making short-term pullbacks attractive buying opportunities. Ongoing uncertainty surrounding US interest rate expectations is likely to keep volatility elevated, but the recent weakness in the US Dollar toward the end of the week has provided additional support for the British Pound, helping it maintain its bullish momentum against the greenback.
EUR/USD
The Euro has rebounded and is beginning to regain momentum. Overall, the pair appears likely to make another attempt toward the 1.18 level. However, market participants remain focused on the U.S. interest rate outlook, as they assess whether the recent volatility surrounding rate expectations will start to ease.
Silver
Silver remains highly volatile, with price action continuing to fluctuate within a choppy trading environment. While the broader outlook remains uncertain, the market is likely to stay sensitive to shifts in interest rate expectations. In addition, investor sentiment toward risk assets and the overall direction of the US Dollar will continue to play a key role in driving silver prices. As a result, traders should expect ongoing swings and periods of erratic movement in the near term.
Given the current market conditions, buying on short-term pullbacks appears to be a reasonable strategy. However, the outlook does not suggest an imminent breakout or a significant directional move. A decline below the $70 level could trigger a deeper sell-off and put additional pressure on prices, although such a scenario does not seem particularly likely in the near term. For now, the market appears more inclined toward range-bound trading, with continued back-and-forth price action expected.
Gold
Gold prices moved lower at the start of Monday’s trading session but quickly recovered, with bullish momentum driving the market higher throughout the remainder of the week. Strong buying interest continues to emerge around the $4,600 level, a key area that has attracted considerable attention from traders. Given its importance as a support zone, this level is likely to remain a focal point for market participants and could play a significant role in determining gold’s next directional move.
If interest rates continue to decline, gold could gain additional upward momentum and potentially advance toward the $4,800 level. The lower-rate environment would likely enhance the appeal of non-yielding assets such as gold. From a longer-term perspective, the overall outlook remains positive, with the broader trend continuing to favor further gains in the precious metal.
USD/JPY
The US Dollar posted modest gains against the Japanese Yen during the week, although the 160.00 level continues to act as a major resistance barrier. Recent interventions and increased market activity from the Bank of Japan suggest that policymakers remain committed to supporting the yen and preventing excessive currency weakness.
Despite these efforts, the yen continues to face challenges due to Japan’s relatively low interest rate environment, which limits its ability to attract capital flows and strengthen significantly. As a result, the broader outlook still favors the US Dollar, and it may only be a matter of time before USD/JPY makes another attempt to break above the 160.00 level.
A break below the 158.00 yen level would represent a significantly bearish development for USD/JPY. Such a move could signal a shift in market sentiment, potentially triggering additional selling pressure and raising the likelihood of a deeper correction. As a result, the 158.00 area remains a key support level that traders will be watching closely.
USD/CAD
The US Dollar initially strengthened during last week’s trading, but much of those gains were later surrendered against the Canadian Dollar. This price action suggests that traders should remain cautious, as bullish momentum has yet to establish itself convincingly.
At the same time, the 50-week Exponential Moving Average (EMA) continues to act as a notable resistance barrier, limiting upside progress. Until the pair can break decisively above this level, the market may remain vulnerable to further consolidation or renewed selling pressure.
A move below the 1.3750 level could be a significant bearish signal for USD/CAD, potentially opening the door to a much deeper decline. Such a breakdown would likely encourage additional selling pressure and shift the market’s near-term outlook to the downside.
From a broader perspective, however, the pair appears likely to remain trapped in a range-bound environment. As a result, traders should continue to expect considerable volatility and back-and-forth price action, with neither buyers nor sellers maintaining a clear long-term advantage for the time being.
Bitcoin
Bitcoin moved lower during the week but later recovered some of its losses, signaling a degree of market indecision. Price action suggests that traders remain cautious, with neither buyers nor sellers able to establish clear control.
While the market will likely need to make a more decisive directional move in the near future, Bitcoin does not currently appear to have the momentum required for a strong breakout to the upside. Until a clearer catalyst emerges, the cryptocurrency may continue to trade within a period of consolidation and uncertainty.
While the longer-term outlook remains constructive, any meaningful move higher is likely to develop gradually rather than through an immediate breakout. In the near term, a modest rebound appears possible this week as buyers attempt to regain control following recent weakness.
Looking ahead, the market could eventually make another push toward the $77,000 level, although achieving that target may require time and sustained buying interest. For traders and investors alike, patience is likely to be essential, as the path higher may involve periods of consolidation and uneven price action before a stronger trend emerges.
DAX
Germany’s DAX index experienced some selling pressure after rallying earlier in the week, giving back a portion of its gains. Despite the pullback, the 25,000 level appears to be providing an important area of support, helping to stabilize price action.
Overall, market sentiment remains relatively constructive, with many traders viewing declines as potential buying opportunities. As a result, pullbacks are likely to attract interest from investors looking to enter the market at more favorable levels, which could help support the index in the near term.
A break above last week’s high near the 25,425 level could serve as a strong bullish signal for the DAX. Such a move would likely reinforce positive market sentiment and attract additional buying interest from traders and investors who have been waiting for confirmation of further upside momentum.
If that resistance level is successfully cleared, participation in the market could increase significantly, potentially paving the way for a stronger advance and extending the broader upward trend.
The USD/CAD pair hovered sideways around 1.3785 during early Asian trading on Friday. Market participants are keeping a close eye on developments regarding a potential US-Iran ceasefire agreement, while Canada’s upcoming Q1 2026 GDP report is projected to reveal an annualized growth rate of 1.5%.
The US Dollar and Canadian Dollar are essentially stuck in place near 1.3785 this Friday morning as currency traders weigh two massive market drivers: Middle East geopolitics and Canadian economic data.
On the geopolitical front, there is hope for an extended peace deal between the US and Iran. The Guardian reported a potential 60-day extension to keep vital shipping lanes open while bigger issues, like Iran’s nuclear ambitions, are negotiated. US Vice President JD Vance confirmed they are still ironing out a few specific phrases but are moving in the right direction. If this peace deal goes through, oil prices will likely drop. Since Canada exports a ton of oil, any major shift in crude prices heavily impacts the value of the Canadian Dollar.
Meanwhile, Canada’s latest GDP numbers drop later today. After shrinking by 0.6% at the end of 2025, the economy is expected to bounce back with 1.5% growth for the first quarter of 2026. If the data beats expectations, expect the “Loonie” to gain some muscle against the US Dollar.
AUD/USD bulls stay cautious during Friday’s Asian session as mixed fundamental signals keep traders on the sidelines.
Reports of a potential US-Iran peace agreement weigh on the safe-haven US Dollar, providing modest support to the pair.
However, expectations that the Federal Reserve will maintain a hawkish stance help limit USD downside, while fading hopes for additional rate hikes from the Reserve Bank of Australia restrain gains for the Aussie.
The AUD/USD pair struggles to build on Thursday’s solid rebound from below the 0.7100 mark, a one-week low, and trades sideways during Friday’s Asian session. Even so, the pair remains above 0.7150 and is on track to post its first weekly gain in three weeks.
News that the US and Iran have drafted an agreement to prolong the current ceasefire by 60 days has weakened demand for the safe-haven US Dollar (USD), providing some support to the AUD/USD pair. However, investors remain cautious about the prospects of a lasting peace deal due to ongoing disputes surrounding Iran’s nuclear ambitions and the Strait of Hormuz.
At the same time, stronger US inflation data for April — the sharpest rise in three years — reinforced expectations that the US Federal Reserve (Fed) could raise interest rates again before year-end, lending support to the USD. In addition, fading expectations of a June rate hike from the Reserve Bank of Australia (RBA) continue to limit upside momentum for the Aussie.
From a technical standpoint, the pair is still trading within the same range that has held for roughly the past two weeks. The upper boundary of this range aligns with the 100-period Simple Moving Average (SMA) on the 4-hour chart, as well as the 23.6% Fibonacci retracement of the March-to-May rally, suggesting that bullish momentum remains somewhat restrained.
Meanwhile, the Relative Strength Index (RSI) sits around 56, while the Moving Average Convergence Divergence (MACD) remains slightly positive, indicating that bearish pressure is not yet dominant. Still, a decisive move above the key resistance zone around 0.7180–0.7185 would be required to confirm that the recent pullback from the multi-year peak has ended and that further gains are likely.
A sustained breakout above this barrier could pave the way toward the 0.7279 swing high. On the downside, immediate support is seen near the 38.2% Fibonacci retracement level at 0.7109, followed by the 50% retracement around 0.7056. Further declines could expose 0.7003 and 0.6928, ahead of the broader support base near 0.6833.
The US Dollar Index (DXY) strengthens to around 99.00 during Friday’s Asian session as investors monitor ongoing US-Iran negotiations. Vice President JD Vance stated that Washington and Tehran are “very close” to reaching a deal, though key issues remain unresolved.
Meanwhile, the US core PCE inflation rate rose 3.3% year-over-year in April, matching market expectations and reinforcing the Federal Reserve’s cautious policy stance.
The US Dollar Index (DXY), which tracks the US Dollar (USD) against a basket of six major currencies, trades near the 99.00 level during Friday’s Asian session. The Greenback edges higher following reports that the United States and Iran have reached a preliminary agreement to extend their ceasefire, although US President Donald Trump has yet to formally approve the deal.
According to Bloomberg, Washington and Tehran have tentatively agreed to prolong the ceasefire by 60 days while continuing negotiations over Iran’s nuclear program. Optimism surrounding a potential resolution to the three-month conflict could, however, limit demand for the safe-haven US Dollar.
US Vice President JD Vance stated on Friday that several key issues still need to be resolved before a final agreement can be achieved. Speaking to the BBC, Vance said it remains uncertain “when or if” both sides will ultimately reach a formal deal.
On the economic front, data released by the US Bureau of Economic Analysis (BEA) on Thursday showed that the Personal Consumption Expenditures (PCE) Price Index rose 3.8% year-over-year in April, up from the previous 3.5% reading and in line with market forecasts.
Meanwhile, the core PCE Price Index, which excludes food and energy prices, increased 3.3% annually in April versus 3.2% previously, also matching expectations. On a monthly basis, headline PCE and core PCE advanced by 0.4% and 0.2%, respectively. The inflation data reinforced expectations that the Federal Reserve (Fed) may keep interest rates elevated for an extended period.
According to the CME FedWatch Tool, markets are currently pricing in a roughly 36.6% chance that the Fed will deliver a 25-basis-point rate hike before the end of the year.
The US Dollar Index (DXY) rises toward 99.50 as Iran’s strikes on US military bases reignite tensions between Washington and Tehran. The Islamic Revolutionary Guard Corps (IRGC) warned of stronger retaliation if the US launches further attacks. Meanwhile, markets are increasingly pricing in a hawkish Federal Reserve stance, with the probability of at least one Fed rate hike this year climbing above 50%.
The US Dollar (USD) attracts strong buying interest during Thursday’s Asian session after Iran retaliated against recent US strikes near Bandar Abbas airport, according to Tasnim news agency.
At the time of writing, the US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, is up around 0.25% on the day and trading near the 99.50 level. The renewed escalation in US-Iran tensions has boosted demand for safe-haven assets, supporting the USD.
Iran’s Islamic Revolutionary Guard Corps (IRGC) stated that it had launched attacks on US military bases and warned that any further US aggression would trigger an even “more decisive” military response.
The IRGC had previously pledged retaliation following Wednesday’s so-called “defensive strikes” by the US Central Command, which targeted Iranian boats allegedly involved in deploying naval mines.
The renewed military confrontation between Washington and Tehran has sharply weakened hopes for a lasting peace agreement. Iran’s counterattacks have also fueled a strong rebound in oil prices, raising concerns about higher inflation and prompting traders to increase expectations of a more hawkish Federal Reserve (Fed) stance.
According to the CME FedWatch Tool, markets currently see a 43.1% probability that the Fed will keep interest rates unchanged through the year, while the remaining expectations point toward at least one rate hike. This marks a major shift from earlier market expectations that anticipated two rate cuts before the conflict escalated.
Looking ahead, investors are closely watching the release of the US April Personal Consumption Expenditures (PCE) Price Index data at 12:30 GMT. The Fed’s preferred inflation measure is forecast to rise 3.8% year-over-year, compared with the previous reading of 3.5%.
GBP/USD trades around 1.3446 during Tuesday’s European midday session, declining 0.42% on the day as the pair continues to retreat after failing to hold above the key 1.3500 psychological barrier earlier in the session. Sterling reached a three-week peak at 1.3517 on April 22, supported by broad US Dollar weakness during the short-lived easing of Iran-related tensions, but has since fallen roughly 70 pips toward the 1.3400 region. This area is reinforced by nearby technical support from the 21-day SMA at 1.3444 and the 50-day SMA at 1.3409.
Meanwhile, the 8-day, 21-day, 50-day, and 100-day EMAs are all converging close to current price levels, creating a compressed technical setup that has historically preceded directional moves of around 150–200 pips once a decisive catalyst emerges. Since March 30, GBP/USD has largely remained confined within a broader 335-pip range between the 1.3182 low and the April 22 high at 1.3517, encompassing the full period of volatility linked to the Iran conflict. With the pair now trading near the midpoint of that range, price action continues to reflect the consolidation pattern highlighted in the 30-day baseline outlooks from JPMorgan Chase and Cambridge Currencies.
Today’s Catalyst: Dollar Gains Safe-Haven Support After U.S. Strikes on Iranian Vessels
Tuesday’s decline in GBP/USD below the 1.3500 threshold was primarily driven by renewed geopolitical tensions that boosted demand for the US Dollar as a safe-haven asset. Overnight, US forces launched defensive strikes on Iranian vessels near the Strait of Hormuz, while President Donald Trump reportedly urged negotiators “not to rush into a deal,” undermining the de-escalation optimism that had previously helped Cable climb to a three-week high.
According to FXStreet, GBP/USD extended its retreat during the European session as cautious market sentiment strengthened the greenback following the latest US-Iran developments. The broader dollar rally pushed the US Dollar Index to a one-month high near 99.27, while EUR/USD slipped below 1.1650 and USD/JPY advanced toward 159.32.
The underlying market logic remains straightforward: as geopolitical risk returns, investors rotate back into the US Dollar. Sterling has struggled to counterbalance that flow because the current interest-rate differential between the Bank of England and the Federal Reserve is among the narrowest across major currency pairs, limiting the pound’s relative yield advantage.
Attention now shifts to Wednesday’s Camp David peace talks, which could become the next decisive catalyst for FX markets. A successful framework agreement would likely reduce safe-haven demand for the dollar and potentially drive GBP/USD back toward the 1.3600 area. On the other hand, if negotiations deteriorate or fail altogether, bearish momentum could accelerate, exposing the 1.3400 level and possibly opening the path toward 1.3300.
Cable’s technical setup continues to revolve around several well-defined levels closely watched by market participants. Initial support is seen at 1.3444, where the 21-day SMA currently sits, followed by the 50-day SMA at 1.3409 and the psychologically important 1.3400 handle, which also marks a recent consolidation base.
A decisive move below 1.3400 could expose the pair to deeper losses toward 1.3300, while 1.3182 — the March 30 six-week trough — stands as the next major structural support level.
On the upside, resistance remains concentrated around the 1.3500–1.3517 region, aligning with both the late-April peak and a key psychological barrier. Beyond that, traders are monitoring 1.3600, followed by 1.3700 as the broader upside target, particularly if the Bank of England adopts a more hawkish stance or the US Dollar weakens significantly.
The 21-day SMA near 1.3444 has repeatedly attracted price action throughout May, while the clustering of the 8-, 21-, 50-, and 100-day EMAs around current levels points to an unusually compressed technical structure — a condition that often precedes a stronger directional breakout.
Momentum indicators continue to reflect indecision. RSI remains neutral within the 45–55 range, while MACD hovers near the zero line, reinforcing the classic “coiled spring” technical setup.
BoE Outlook: Rates Held at 3.75% as Bailey Dismisses Immediate Tightening Expectations
The Bank of England kept its Bank Rate unchanged at 3.75% during the March MPC meeting, with policymakers voting unanimously to maintain current settings. The April 30 meeting produced another widely expected hold, in line with the consensus forecast among Reuters-polled economists.
A key takeaway for markets has been Governor Andrew Bailey pushing back against expectations of near-term rate hikes. Despite persistent inflation pressures in the eurozone and elevated US CPI readings, the BoE continues to characterize the UK’s inflation overshoot as largely temporary and energy-related rather than deeply embedded in the domestic economy.
Current market pricing implies around 39 basis points of tightening over the next 12 months — effectively suggesting one modest rate increase spread gradually across the year instead of an aggressive hiking cycle.
The central bank’s cautious stance also reflects concerns about weakening domestic demand. The MPC’s February 2026 projections showed a negative output gap of roughly 1% of GDP for 2026, a signal that economic slack may eventually argue more for easing than additional tightening.
Meanwhile, the BoE’s projected inflation range for Q2 and Q3 remains around 3.0%–3.5%, and March CPI at 3.3% arrived comfortably within that band. That outcome has given Bailey room to justify maintaining a patient, wait-and-see approach.
Markets had viewed the April rate decision as a potential catalyst for a larger move in GBP/USD. A clearly hawkish hold could have lifted Cable toward the 1.37–1.38 region, while a more dovish message risked reversing sterling’s recent gains. Instead, the BoE delivered a balanced and nuanced hold, helping keep GBP/USD anchored near the 1.3500 area rather than sparking a decisive breakout in either direction.
UK Macro Picture: Cooling Headline Inflation Meets Sticky Services Prices and Softening Labor Market
Sterling’s fundamental backdrop remains divided by what increasingly resembles a mild stagflationary environment in the UK economy.
Headline inflation eased notably in April, with CPI slowing to 2.8% year-over-year from 3.3% in March and 3.0% in February. The decline was partly supported by the regulator-controlled energy price cap, which helped limit the pass-through from Iran-related energy market volatility into household costs.
However, underlying inflation pressures remain elevated. Services inflation accelerated to 4.5% in March from 4.3% previously, while wage settlements for 2026 are tracking near 3.6% — both still well above levels the Bank of England would typically view as fully consistent with price stability.
At the same time, cracks are appearing in the labor market. UK unemployment unexpectedly climbed to 5.0% in the three months through March, up from 4.9%, while job vacancies fell 3.9% to around 705,000 — the weakest reading in five years, according to the Office for National Statistics.
This combination of softer headline inflation, persistent services-sector price pressure, weakening employment conditions, and a projected negative output gap has left the BoE stuck in a difficult policy position. Inflation in services remains too elevated to comfortably justify rate cuts, yet slowing growth and labor-market deterioration make aggressive tightening increasingly difficult to defend.
The uncertainty surrounding the broader geopolitical situation — particularly the potential economic consequences of the Iran conflict — has added another layer of caution to the central bank’s outlook.
That policy dilemma helps explain why the BoE has maintained its 3.75% Bank Rate despite conflicting economic signals. As noted by T. Rowe Price, the UK policy rate already sits near the upper end of the Federal Reserve’s range, giving sterling a degree of yield support against the dollar even before any additional BoE tightening is considered.
Fed Outlook: Warsh Transition, Split FOMC, and Rising Odds of Another Rate Hike
The US side of the GBP/USD rate differential is entering a period of added uncertainty as leadership changes at the Federal Reserve reshape market expectations.
Jerome Powell officially concluded his term as Fed Chair on May 15, while Kevin Warsh is expected to preside over the June 16–17 FOMC meeting after his nomination advanced through the Senate Banking Committee.
The April 28–29 FOMC meeting kept rates unchanged at 3.50%–3.75%, but the decision came with an unusually divided 8–4 vote — the highest number of dissents since 1992. The split highlighted growing disagreement within the committee over whether policymakers should respond more aggressively to Iran-related energy inflation risks.
Markets are now pricing roughly a 25% probability of a quarter-point hike by December, according to CME FedWatch estimates, up from around 21.5% earlier in the month. Investors also increasingly expect Warsh to adopt a more hawkish tone, particularly regarding balance-sheet policy and the broader inflation outlook.
US Treasury yields remain elevated, reinforcing underlying dollar support. The 10-year yield is trading around 4.47%–4.59%, the 30-year near 5.02%–5.12%, and the 2-year around 4.08%. Those yield levels continue to favor the dollar versus sterling unless the Bank of England unexpectedly shifts toward a more aggressive tightening stance.
For GBP/USD, the policy asymmetry remains critical. A hawkish surprise from Warsh — especially a June rate increase or stronger tightening guidance — could drag Cable back toward the 1.3300 region. Conversely, if the Fed signals a willingness to prioritize growth risks and eventually cut rates despite elevated inflation, sterling could regain momentum toward the 1.3700 area and beyond.
Rate Parity and the BoE–Fed Dynamic: The Core Driver Behind Cable’s Q3 Outlook
The defining structural feature of GBP/USD right now is the unusually tight rate alignment between the Bank of England and the Federal Reserve.
With the BoE’s Bank Rate at 3.75% and the Fed funds range sitting at 3.50%–3.75%, sterling assets currently offer yields that are marginally above comparable dollar-denominated assets. That 0–25 basis-point differential is historically narrow and reflects how closely the two policy paths have converged since the post-2024 normalization cycle began.
The market implication is straightforward but highly important for Cable:
Any hawkish shift from the BoE — whether through dissenting MPC votes, firmer guidance language, or upgraded inflation forecasts — would likely widen the yield advantage in sterling’s favor and push GBP/USD toward the 1.3600–1.3700 region.
Conversely, a dovish turn from the BoE, especially if rising unemployment and a negative output gap eventually force rate cuts, could push the differential back in favor of the dollar and drag Cable toward 1.3300–1.3200.
The same logic applies on the US side. A more hawkish Kevin Warsh-led Fed would strengthen the dollar by widening rate spreads against sterling, while a dovish pivot would erase much of the dollar’s remaining yield advantage and weaken USD broadly.
That interaction makes GBP/USD arguably the most policy-sensitive G10 currency pair heading into Q3 2026. The June 16–17 FOMC meeting and the next BoE decision later in June are increasingly viewed as the two major binary catalysts likely to define the pair’s medium-term direction.
Meanwhile, the broader dollar backdrop remains constructive but far from decisively bullish.
The U.S. Dollar Index is trading near 99.27, its highest level in roughly five weeks, supported by renewed safe-haven demand linked to Iran tensions and firmer US Treasury yields. Even so, the index remains well below the wartime spike above 100 recorded earlier in April when the conflict initially pushed oil prices toward $116 per barrel.
The broader 2026 dollar story has been one of stabilization after extreme volatility:
DXY fell roughly 11% during the first half of 2025 — its steepest H1 decline since 1973 — amid tariff-related capital outflows.
The index bottomed near 96.5 in September 2025.
Since then, it has largely consolidated within a 96–100 range through most of Q2 2026.
According to Cambridge Currencies, DXY could drift toward 94–98 in Q3 and potentially 90–96 by Q4, a scenario broadly consistent with their year-end GBP/USD projection around 1.37–1.42 if second-half dollar weakness develops.
Yield spreads also continue to shape relative currency flows. The US–Germany 10-year spread remains elevated near 159 basis points, while the equivalent US–UK spread is notably narrower at roughly 60–80 basis points depending on daily moves — another reason sterling has held up comparatively well against the dollar.
Positioning data further complicates the outlook. CFTC figures show speculative USD net longs near the 18th percentile on a 52-week basis, meaning market positioning remains relatively light in dollar exposure. That creates the potential for an asymmetric short squeeze in the dollar if geopolitical tensions ease abruptly or if the Fed unexpectedly turns more hawkish.
The institutional forecast range for GBP/USD remains unusually wide by G10 standards, reflecting the high degree of uncertainty surrounding both central-bank policy and geopolitical developments.
The bearish end of the spectrum is led by Goldman Sachs, which projects Cable near 1.36 by the end of 2026. Goldman’s view is that sterling remains heavily tied to broader EUR/USD dynamics and lacks a strong independent catalyst, especially as slower UK growth and fiscal tightening limit upside potential even in an environment of moderate dollar weakness.
JPMorgan Chase holds a more cautious medium-term stance, expecting GBP/USD around 1.39 in early 2026 before easing back toward 1.36 later in the year. Their framework centers on cyclical US economic slowing and expanding fiscal concerns weighing on the dollar, though they remain wary of UK-specific risks such as potential BoE easing toward 3.25% or lower. As a result, JPMorgan favors tactical sterling longs rather than aggressive structural bullish positions.
Meanwhile, MUFG sees Cable moving toward 1.40 by mid-2026, broadly in line with a gradual unwinding of US dollar strength.
A somewhat more constructive outlook comes from Cambridge Currencies, which forecasts GBP/USD in the 1.37–1.42 range by year-end. That scenario depends heavily on continued de-escalation in the Iran conflict and at least one rate cut from a Federal Reserve led by Kevin Warsh.
The most bullish major-bank projection currently comes from Morgan Stanley, targeting 1.47 by the end of 2026. Their thesis assumes three Fed rate cuts in the first half of the year, driving policy rates toward 3.00% and significantly reducing the dollar’s yield advantage. However, Morgan Stanley has recently softened some of its bullish conviction as the dollar continues to show resilience amid geopolitical uncertainty and elevated Treasury yields.
Outside the major-bank consensus, Long Forecast projects GBP/USD around 1.4750 by the end of 2026, with a longer-term bullish scenario extending toward 1.5500 by late 2028.
On the downside, the principal bearish risk scenario remains a combination of dovish BoE policy and renewed escalation in the Iran conflict. Under that setup, Cable could fall toward 1.32, with stronger long-term structural support expected near 1.30.
Overall, Reuters analyst surveys continue to show the broad consensus clustered between 1.36 and 1.40 for year-end 2026, reinforcing the idea that markets expect gradual sterling appreciation — but not a disorderly collapse in the dollar.
Cross-Asset Snapshot: Tight Yield Spreads, Choppy Oil, and a Resilient Dollar
Tuesday’s cross-asset backdrop around GBP/USD reflected a broader “risk-off-light” market tone, with price action driven primarily by shifting geopolitical headlines and bond-yield volatility.
The U.S. 10-Year Treasury Yield initially fell roughly 7 basis points to around 4.47% following temporary optimism surrounding Iran peace discussions, before rebounding back toward 4.50% after comments from Donald Trump reignited demand for safe-haven positioning. That sharp intraday reversal has made it difficult for FX traders to establish durable positions around the US-UK yield differential.
Meanwhile, UK 10-year gilt yields remain anchored near the 4.5% area, holding close to the highest levels seen since 2008 as markets continue to price persistent inflation risks tied to the Iran conflict and elevated energy prices.
Oil markets also stayed highly volatile. Brent Crude rebounded toward $100.40 after falling as low as $96.20 earlier in the session, while West Texas Intermediate climbed back near $94.19. The sharp swings in crude prices continue to dominate broader macro sentiment across G10 FX markets.
Elsewhere, Gold fell around 1.1% to roughly $4,521.80 per ounce, reinforcing the broader picture of renewed dollar firmness and higher real-yield support. Bitcoin also weakened, slipping toward $76,700 as risk appetite softened.
Taken together, the combination of elevated US yields, a steadier dollar, and unstable energy markets creates a challenging environment for sterling. Compared with the euro, the pound tends to exhibit higher sensitivity to rising US yields, while the UK economy remains more exposed to oil- and gas-driven inflation shocks due to its heavier reliance on imported natural gas.
Positioning Dynamics: Limited Sterling Exposure, Crowded Dollar Shorts
Speculative positioning data continues to reinforce the broader asymmetry embedded in the current GBP/USD setup.
According to recent Commodity Futures Trading Commission data, net long positioning in the US Dollar remains historically light, sitting near the 18th percentile on a 52-week basis. Aggregate USD positioning is still close to heavily shorted territory, with speculative net shorts around 28,450 contracts and long exposure declining by roughly 2,750 contracts week-over-week.
Sterling positioning, by contrast, appears far more balanced. CFTC data shows GBP net shorts at only moderate levels, indicating that traders are neither aggressively bullish nor heavily bearish on the pound at current levels.
That distinction matters because the dollar’s recent strength does not appear to be driven primarily by speculative momentum buying. Instead, the bid has been supported by genuine safe-haven demand and higher US yield differentials — flows that tend to be more durable in the short term, but also highly vulnerable to a sudden geopolitical de-escalation.
For GBP/USD, the implication is asymmetric:
A credible Iran de-escalation agreement or broader geopolitical breakthrough could trigger a rapid unwinding of defensive dollar positioning, allowing Cable to accelerate quickly toward the 1.3600–1.3700 zone.
However, that upside scenario likely requires a clean diplomatic outcome with sustained confidence that regional tensions are easing materially.
On the other hand, if the conflict drags on without resolution, the positioning backdrop suggests a slower, steadier grind lower for sterling rather than a disorderly collapse, as investors continue favoring the dollar’s safe-haven and yield advantages.
Key Risks to the Bullish GBP/USD Outlook
The bullish case for Cable remains highly conditional and vulnerable to several major macro and geopolitical risks.
The first and most immediate threat would be a dovish surprise from the Bank of England. If UK unemployment continues rising above 5.0% and economic activity weakens further, the BoE could eventually be forced to cut rates back toward 3.50%. Such a move would likely erase sterling’s narrow yield advantage over the dollar and push GBP/USD below the critical 1.3400 support area, potentially opening a move toward 1.3300. In that context, Governor Andrew Bailey’s repeated pushback against rate-hike expectations may partly reflect an effort to preserve policy flexibility should growth conditions deteriorate more sharply.
The second major risk centers on renewed escalation in the Iran conflict. A fresh surge in oil prices — particularly if Brent Crude climbs back above $110 per barrel — would likely drive US Treasury yields higher, strengthen the U.S. Dollar Index above the 100 level, and increase safe-haven demand for the dollar. Under that scenario, GBP/USD could slide toward the 1.3200 region.
A third vulnerability comes from UK fiscal policy. Rachel Reeves continues to face a difficult balancing act between fiscal discipline and economic support. Fiscal credibility concerns have periodically triggered sharp sterling selloffs, including the notable volatility episode in July 2025 that markets informally labeled “Pound Plummets on Chancellor’s Tears.” Any disappointing Spring Statement or Budget announcement could easily trigger another 200–300 pip downside adjustment in sterling.
The fourth risk factor is political instability. Upcoming by-elections, combined with uncertainty surrounding a potential autumn Budget, could reintroduce a meaningful political-risk premium into UK assets and weigh further on the pound.
The bearish interpretation has been summarized well by Rabobank, which argues that sterling may struggle to sustain recent gains amid persistent political uncertainty and a weak domestic macro backdrop.
By contrast, the bullish case for GBP/USD requires several conditions to align simultaneously:
sustained Iran de-escalation,
a relatively hawkish BoE hold,
a more dovish Federal Reserve pivot toward cuts,
and stable UK fiscal policy.
In practical terms, sterling likely needs at least three of those four factors to fall into place before a sustained move toward the 1.37–1.40 region becomes realistic.
Final Outlook: GBP/USD’s 1.3400–1.3700 Range Hinges on Camp David and the Warsh-Led Fed
GBP/USD’s move around 1.3446 leaves Cable firmly trapped within the 1.3400–1.3517 range that has dominated price action throughout most of May. The next decisive breakout now depends on three major catalysts expected over the coming month: the Camp David Iran peace talks, the late-June Bank of England meeting, and the June 16–17 Federal Reserve meeting expected to be led by Kevin Warsh.
The bullish scenario begins with a credible diplomatic breakthrough at Camp David. A meaningful Iran framework agreement that stabilizes the Strait of Hormuz and reduces safe-haven demand for the dollar could quickly lift GBP/USD toward 1.3600, with 1.3700 becoming the next major structural upside target.
If the BoE then delivers a hawkish hold — particularly through dissenting votes or firmer inflation guidance — the upside case strengthens further and aligns with Cambridge Currencies’ projected 1.37–1.42 range.
The most aggressive sterling-bullish path would emerge if Warsh subsequently signals a willingness to move toward Fed easing despite elevated inflation pressures. Under that setup, the broader dollar yield advantage would erode materially, making Morgan Stanley’s 1.47 year-end target increasingly plausible.
The bearish scenario requires the opposite chain of events:
failure or breakdown in the Camp David negotiations,
renewed Iran escalation pushing Brent Crude back above $110,
a dovish BoE shift that eliminates sterling’s narrow rate advantage,
or a hawkish Warsh-led Fed that drives the U.S. Dollar Index decisively above 100.
In that environment, GBP/USD would likely retest 1.3400 and potentially extend losses toward 1.3300, bringing the more conservative year-end forecasts from Goldman Sachs and JPMorgan Chase back into focus as the dominant structural baseline.
Technically, the unusually tight clustering of the 8-, 21-, 50-, and 100-day EMAs around current spot levels signals that a larger directional move is approaching. The catalyst calendar creates an asymmetric setup:
Iran de-escalation favors upside acceleration,
while disappointing UK macro data or dovish BoE signals favor downside pressure.
Ultimately, the defining question for GBP/USD through Q3 may simply be which side of 1.3500 the pair is trading on by July. For now, Tuesday’s rejection from 1.3517 back toward 1.3450 suggests that marginal capital flows still lean modestly in favor of the dollar.
The Canadian Dollar lacked clear direction against major currencies as investors monitored fresh updates on US-Iran negotiations. Meanwhile, Canada’s Q1 GDP is forecast to expand at an annualized rate of 1.5%.
The Canadian Dollar (CAD) traded mostly steady against its major counterparts on Wednesday’s Asian session, with the exception of the New Zealand Dollar (NZD), while hovering near 1.3810 against the US Dollar (USD).
The Loonie struggled to find clear direction as investors closely monitored fresh developments surrounding negotiations between the United States (US) and Iran aimed at permanently ending tensions in the Middle East and reopening the Strait of Hormuz.
Talks between Washington and Tehran remained ongoing despite Iran accusing the US of carrying out attacks that US Central Command described as “defensive” actions intended to protect American troops from threats posed by Iranian forces, according to the BBC.
Adding to optimism, an Iranian official stated on Tuesday that the final major obstacle in negotiations involves the release of frozen Iranian assets, with discussions reportedly being mediated by Qatar, according to Iran’s Fars news agency. Although there has been no official confirmation, the comments raised expectations that both sides may be nearing an agreement.
Meanwhile, attention in Canada has shifted toward upcoming monthly and first-quarter Gross Domestic Product (GDP) figures due on Friday. Canada’s monthly GDP is forecast to rise modestly by 0.1%, compared with the previous 0.2% increase. On an annualized basis, the economy is expected to grow 1.5% in Q1 after shrinking 0.6% previously.
USD/CHF edges higher to near 0.7830 during Tuesday’s early European trading hours.
Fresh US strikes have reduced optimism over a potential peace agreement, lending support to the US Dollar.
Despite the rebound, the pair maintains a bearish bias below the 100-day EMA, while the RSI continues to signal negative momentum.
Immediate resistance is seen at 0.7840, with the first support level located at 0.7808.
USD/CHF rebounds toward 0.7830 during Tuesday’s early European session, ending a four-day losing streak. Ongoing uncertainty over US-Iran peace talks is offering modest support to the US Dollar against the Swiss Franc.
According to reports, the US military’s Central Command stated on Monday that American forces conducted strikes in southern Iran in “self-defence.” The military added that it would continue protecting US personnel while exercising restraint amid the current ceasefire.
Investors are now focused on the US April Personal Consumption Expenditures (PCE) Price Index data, scheduled for release later on Thursday. Stronger-than-expected inflation readings could reduce expectations for Federal Reserve rate cuts and provide additional support for the Greenback in the short term.
Technical Analysis
On the daily chart, USD/CHF continues to display a bearish short-term bias, with the pair trading below the 100-day moving average (MA). The price also remains slightly beneath the 20-day Bollinger Band midpoint, highlighting ongoing upside pressure despite a mild rebound from recent lows. Meanwhile, the 14-day Relative Strength Index (RSI) stands at 48, just below the neutral 50 threshold, suggesting bearish momentum has weakened but has yet to turn bullish.
To the upside, the first resistance level is located at the 100-day MA around 0.7840. A sustained daily close above this zone would help ease near-term bearish pressure and could pave the way for a move toward the upper Bollinger Band near 0.7905.
On the downside, immediate support is seen at the May 26 low of 0.7808. Further weakness could expose the lower Bollinger Band around 0.7760. A break below this area would reinforce the broader bearish trend and increase the risk of fresh daily lows.
Kevin Warsh was officially sworn in today as the 17th Chairman of the FOMC, but persuading policymakers to support interest-rate cuts may prove challenging. The US labor market continues to show resilience — and may even be gaining momentum — while inflation remains above the Federal Reserve’s 2% objective.
Against that backdrop, the US Dollar Index could benefit from expectations of higher US interest rates. If the index breaks above near-term resistance around 99.50, it may quickly rally toward the psychologically important 100.00 level.
In relatively subdued trading ahead of the holiday weekend, Warsh formally succeeded Jerome Powell as the Fed’s new leader. As the preferred candidate of Donald Trump, Warsh is likely to face political pressure to lower borrowing costs. However, current economic conditions make a convincing argument for rate cuts difficult. The unemployment rate remains low, and the latest National Federation of Independent Business Small Business Optimism survey indicates the labor market could be strengthening further rather than slowing.
At the same time, inflation — the other pillar of the Federal Reserve’s dual mandate — is clearly moving in the wrong direction. No matter which inflation gauge is used, price growth remains above the Fed’s 2% target. Moreover, the ongoing conflict involving Iran is likely to add further upward pressure on prices in the months ahead, even if the Strait of Hormuz were to reopen immediately.
Against this backdrop, traders have begun pricing in the possibility of at least one interest-rate hike over the next year. According to the CME Group FedWatch tool, markets are currently assigning a 20% probability that the Federal Reserve could deliver two or more 25-basis-point rate increases by the end of next April.
Although Kevin Warsh is expected to be more cautious about raising interest rates than the average FOMC policymaker — largely due to the political circumstances surrounding his appointment — the broader policy outlook has become increasingly hawkish in recent months.
For now, the Federal Reserve is still expected to keep rates within the current 3.50%–3.75% range throughout the summer unless economic conditions shift unexpectedly. However, if inflation and labor-market data continue to remain strong, even the most dovish members of the committee may eventually have little choice but to support tighter monetary policy.
US Dollar Technical Outlook: DXY 4-Hour Chart
Turning our attention to the charts, higher US interest rates would be expected to support the world’s reserve currency, all else equal. The US Dollar Index (DXY) has been lagging the rally in 2-year Treasury yields (a proxy for near-term FOMC interest rate expectations) since the start of the month, hinting at the potential for a “catch-up” trade to the topside as we head toward June.
From a technical perspective, the US Dollar Index has carved out a sideways range between about 99.00 and 99.50 over the past week and a half, with a symmetrical triangle pattern forming within that zone over the course of this week. The rangebound trade has allowed the world’s reserve currency to correct its overbought condition through time, rather than an outright price correction, a bullish development that hints at another leg higher if 99.50 is eclipsed.
In that scenario, a quick rally toward the psychologically-significant 100.00 level would be the higher-probability development to watch, whereas a bearish breakdown below 99.00 would invalidate the bullish setup and point to a deeper retracement toward 98.50 next.
The US Dollar Index (DXY) is trading near the lower end of last week’s range at around 99.00.
Optimism surrounding a potential peace agreement with Iran is reducing demand for the safe-haven Greenback.
However, expectations of further Federal Reserve tightening are helping limit the USD’s downside pressure.
The US Dollar (USD) opened Monday’s session with a bearish gap, slipping from the 99.30 region — the bottom of last week’s trading range — toward 99.00. Although the US Dollar Index (DXY) remains supported above previous highs, improving sentiment over a possible US-Iran peace agreement and the potential reopening of the Strait of Hormuz are weakening demand for the safe-haven Greenback.
Investor confidence improved after US President Donald Trump suggested that a deal with Tehran may be near, encouraging a moderate risk-on mood in markets. However, Trump maintained a cautious stance, saying he had advised negotiators “not to rush into a deal” and warning that the US would continue blocking the Strait of Hormuz until an agreement is finalized.
Earlier in the day, US Secretary of State Marco Rubio stated that a “fairly strong proposal” to reopen Hormuz is currently under discussion, adding that diplomacy would be fully explored before alternative measures are considered.
Market activity is expected to remain subdued on Monday due to the US Memorial Day holiday closure. Investors are now turning their attention to Thursday’s release of the US Personal Consumption Expenditures (PCE) Price Index, a key inflation gauge closely watched by the Federal Reserve.
Recent US economic data has reinforced confidence in the resilience of the American economy. Combined with persistent inflation pressures, this has strengthened expectations that the Federal Reserve may need to keep interest rates elevated for longer. According to the CME FedWatch Tool, markets are now pricing in more than a 50% probability of another Fed rate hike this year, a factor that could continue limiting downside pressure on the US Dollar.
NZD/USD has been highly volatile throughout the week, and that remains the key theme. The pair appears to have support around the 0.58 level, while resistance is likely near 0.5950.
Overall, this market is likely to remain very choppy. However, with interest rates easing slightly toward the end of the week, the New Zealand dollar could gain some momentum and stage a rebound. On the other hand, if the pair falls below the 0.58 level, it may trigger an additional 100-point decline.
AUD/USD
AUD/USD has also seen a great deal of volatility, with the pair currently hovering around the 0.7150 level. This zone previously acted as resistance and should now provide support. If the pair breaks above this week’s candlestick high, it could pave the way for a move toward the 0.7275 level.
However, a break below the candlestick low could open the door for a decline toward the 0.70 level. It’s worth noting that the Australian dollar continues to outperform many other currencies against the US dollar. As a result, buying on pullbacks may still be the preferred strategy, although market conditions are likely to stay highly choppy.
Gold
The Gold market was also highly volatile this week. With U.S. interest rates remaining relatively elevated, it has become challenging for gold to maintain upward momentum. Overall, the market is likely to keep a close eye on the $4,600 level, as a breakout above that area could pave the way for a move toward $4,800.
On the downside, if price falls below the weekly candlestick low, it could trigger a decline toward the $4,300 level. Broadly speaking, gold continues to be heavily influenced by interest rate expectations — when U.S. rates rise, gold tends to weaken.
USD/CAD
The US dollar has been climbing against the Canadian dollar throughout the week, and that trend is likely to continue. A push toward the 1.39 level seems possible, although the move may remain uneven and volatile along the way.
USD/CAD is typically a range-bound market, so periods of choppy price action would not be unusual. Traders should keep an eye on US interest rates, as further increases could provide additional strength for the pair. Meanwhile, Canada’s economy continues to show signs of weakness, which currently supports a stronger US dollar in this environment.
Bitcoin
Bitcoin ended the week slightly lower, but strong support still appears to be in place beneath current levels. The broader recovery trend remains intact, and the market could eventually rebound toward the $84,000 region. Despite recent geopolitical tensions and the outbreak of war, Bitcoin has shown notable resilience, which is a positive sign for bulls.
Price action is expected to remain volatile and noisy, so patience may be necessary. Another important factor is the continued inflow of institutional money into Bitcoin ETFs, as sustained investment demand could help support prices over time.
USD/MXN
The US dollar moved erratically against the Mexican peso throughout the week, hovering near the 17.33 area. Resistance is seen around 17.50, while the 17.00 level continues to provide support.
This pair is likely to remain highly volatile, with interest rate expectations continuing to influence sentiment. Since Mexico still offers significantly higher interest rates than the United States, traders may continue favoring strategies that involve selling USD/MXN rallies, especially when bearish reversal signals appear on shorter timeframes.
EUR/USD
The euro posted modest losses during the week and tested the 50-week EMA, although overall trading conditions remain choppy. Interest rate differentials between Europe and the US continue to dominate market sentiment, while the 1.16 level appears to be acting as a key price magnet.
The pair is drifting closer to the lower boundary of its broader consolidation range, which could open the door for a move toward 1.14. Ongoing concerns surrounding Europe’s energy situation may add downside pressure. On the other hand, if momentum improves, EUR/USD could attempt another rally toward the 1.1750 region.
NASDAQ 100
The Nasdaq 100 continued attracting buyers on pullbacks, reinforcing the market’s strong bullish momentum. Investors increasingly appear focused on the possibility of the index reaching the 30,000 level, especially as enthusiasm surrounding artificial intelligence continues to drive technology stocks higher during earnings season.
For now, buying dips remains the dominant strategy. Rising interest rates could eventually create headwinds for equities, but the Nasdaq 100 has so far shown an ability to overlook many macroeconomic concerns. At the current pace, a move toward 30,000 seems increasingly realistic.
EUR/USD stays under pressure for a second consecutive session, hovering near 1.1610 during Asian trading hours. The pair weakens as the US Dollar holds firm amid growing expectations of a hawkish Federal Reserve stance. Meanwhile, extended energy supply disruptions caused by the ongoing conflict risk fueling US core inflation and consumer price expectations, potentially encouraging the Fed to maintain higher interest rates for longer.
Technical Analysis
On the five-minute chart, EUR/USD is trading at 1.1621, maintaining a slightly bearish intraday tone as it stays just below the daily opening level of 1.1626. This suggests that upside momentum remains limited while the market continues to absorb earlier selling activity. Meanwhile, the Stochastic RSI has rebounded from oversold conditions into the mid-30 range, indicating that bearish pressure is easing somewhat, although there is still no clear sign of a strong bullish reversal.
To the upside, the first resistance level appears near the daily open at 1.1626. A sustained move above this area would be required to improve the short-term outlook. With no significant nearby support levels visible in the provided data, traders may continue viewing minor pullbacks as vulnerable as long as the pair trades below the daily open. Current momentum indicators point more toward a limited corrective recovery rather than the start of a broader trend reversal.
On the daily chart, EUR/USD is trading around 1.1619 and retains a bearish near-term outlook, as price action remains below the 50-day Exponential Moving Average (EMA) at 1.1683 while hovering just above the 200-day EMA at 1.1618. This setup implies that rallies toward the 1.1680 region could continue to attract selling interest. At the same time, the Stochastic RSI has fallen deeply into oversold territory near 11, signaling that downside momentum may be becoming overstretched in the short term.
On the upside, the 50-day EMA around 1.1683 serves as the key resistance level, and continued trading beneath it would keep bearish pressure intact. On the downside, the 200-day EMA at 1.1618 acts as immediate support. A decisive daily close below this level could trigger another leg lower, whereas maintaining support above it may allow for a corrective rebound within the broader bearish structure.
Fundamental Analysis
A stronger outlook for the US economy is reinforcing expectations for tighter monetary policy and providing additional support for the US Dollar.
Federal Reserve officials remain cautious as they assess the future path of short-term interest rates. Although policymakers are currently keeping the federal funds rate unchanged, they are gradually stepping away from expectations of rate cuts and showing greater willingness to consider further rate hikes should inflation remain persistent.
Meanwhile, the administration of US President Donald Trump announced that Trump will officially swear in Kevin Warsh as Chair of the US Federal Reserve on Friday at the White House. Warsh replaces Jerome Powell, whose term expired Friday but who remained in the role temporarily during the transition period.
On the economic front, data from the US Department of Labor showed that Initial Jobless Claims declined by 3,000 to 209,000 in the second week of May, highlighting continued strength in the labor market. However, Continuing Jobless Claims edged higher to 1.782 million for the week ending May 9, compared with 1.776 million in the prior week.
The Euro weakened against the US Dollar after traders responded to an unexpected contraction in the Eurozone economy. Preliminary S&P Global PMI data released Thursday showed that business activity across the Euro Area contracted in May at the fastest pace since late 2023. The downturn was largely attributed to a conflict-driven rise in living costs, which weighed on services demand and pushed input price inflation to its highest level in three years.
Attention now turns to upcoming German economic releases, including the June GfK Consumer Confidence Survey, first-quarter GDP figures, and the IFO Business Climate Survey.
AUD/USD could climb toward the nine-day EMA at 0.7164.
The 14-day RSI, hovering near 48, suggests the recent decline is entering a consolidation phase with no clear dominance from either buyers or sellers.
On the downside, immediate support is seen at the 50-day EMA around 0.7115.
AUD/USD extends its decline after posting modest losses in the previous session, trading near 0.7140 during Friday’s Asian session. Technical analysis on the daily chart shows the pair continuing to trade within a developing descending wedge pattern, pointing to two possible outcomes depending on how price behaves around the formation’s boundaries.
A clear breakout above the wedge’s descending resistance line would indicate renewed bullish momentum and raise the prospect of a trend reversal to the upside. However, as the pattern is still forming, failure to overcome the upper boundary could keep the pair trapped in a period of choppy, downward consolidation until a decisive breakout emerges.
The pair remains supported above the 50-day Exponential Moving Average (EMA) while facing resistance from the nine-day EMA. Combined with the 14-day Relative Strength Index (RSI), which is hovering around the neutral 48 level, the setup reflects a consolidative bias with limited momentum from either buyers or sellers following the recent retreat.
On the upside, AUD/USD could test initial resistance at the nine-day EMA near 0.7164, followed by the upper edge of the descending wedge around 0.7200. A successful breakout above that region may open the door for a move toward 0.7277 — the highest level since June 2022, reached on May 6.
To the downside, immediate support is located at the 50-day EMA around 0.7115, with additional support near the wedge’s lower boundary at 0.7080. A sustained move below this area could intensify bearish pressure and expose the pair to a deeper decline toward the four-month low of 0.6833 recorded on March 30.
The US Dollar Index remained largely steady as investors balanced optimism over US-Iran peace negotiations with rising tensions around the Strait of Hormuz. President Trump stated that talks between Washington and Tehran are entering their final phase, while the latest FOMC Minutes revealed that most Fed officials signaled the possibility of further rate hikes if inflation remains above the 2% target.
The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, traded little changed around 99.10 during Thursday’s Asian session after posting modest losses in the previous session.
The US Dollar remained supported as investors weighed the economic impact of ongoing US-Iran peace negotiations against escalating tensions surrounding the strategically vital Strait of Hormuz shipping route.
According to a Bloomberg report on Wednesday, President Donald Trump said negotiations with Iran are approaching their final stage, while also warning that military action could resume within days if Tehran refuses US demands. Iranian President Masoud Pezeshkian responded by rejecting any notion of surrender, stating on X that attempts to force capitulation through pressure were merely an illusion.
Meanwhile, the minutes from the Federal Open Market Committee’s April meeting revealed a hawkish stance among Federal Reserve officials. Most policymakers indicated that further interest rate hikes could be necessary if inflation remains persistently above the Fed’s 2% target, with concerns growing over inflationary risks linked to the Iran conflict.
THE ETERNAL SOVEREIGN 