- Despite early safe-haven support, the US Dollar slightly eases on Friday trading.
- Renewed tensions in the Middle East emerge as reports surface of Israel targeting an Iranian military base.
- The US Dollar Index dips below 106.00, indicating increasing pressure for a breakthrough.
The US Dollar Index (DXY), which measures the dollar against a basket of six major currencies, retreats after initially gaining momentum due to reports confirming Israel’s attack on Iran, as stated by US officials. Market attention now turns to any forthcoming statements or developments from Iran. There’s a slight easing in safe-haven assets following earlier significant inflows into the Greenback, Japanese Yen (JPY), and Swiss Franc (CHF). However, any aggressive rhetoric from Iran could reignite demand for safe havens and lead to further sell-offs in risk assets.
On the economic front, Friday’s calendar is light, with only Federal Reserve Bank of Chicago President Austan Goolsbee scheduled to speak at a conference in Chicago. Throughout the day, market focus will primarily be on developments in the Middle East. Looking ahead, if oil prices remain elevated for an extended period, the US Federal Reserve (Fed) may face challenges with inflation accelerating due to the rising energy component.
Daily digest market movers: Easing off
Tensions surged in the Middle East following Israel’s strike on an Iranian military airforce base, sparking market upheaval across various asset classes. However, some moderation is evident:
- Equities initially plunged into the red but have since recovered from their lows.
- Bonds remain in demand, leading to declining yields.
- The Greenback, Swiss Franc, and Japanese Yen experienced significant inflows but are now witnessing outflows.
- Both Brent and Crude oil are trading lower after earlier spiking.
- De-escalation is underway as the market perceives the attack as relatively minor, and Iran has stated it sees no immediate need for retaliation.
At 14:30 GMT, Federal Reserve Bank of Chicago President Austan Goolsbee will participate in a moderated Q&A at the Association for Business Journalists 2024 SABEW Annual Conference in Chicago.
European Central Bank (ECB) member Edward Scicluna’s unexpected comments suggesting a 50 basis point cut at the next meeting due to projected inflation undershooting 2% stirred discussion.
Equity markets are under pressure due to Middle East tensions, trading in negative territory overall. However, European and US equity futures have rebounded from earlier lows during the first part of European trading hours.
According to the CME Group’s FedWatch Tool, expectations solidify a no-change stance on the Fed’s monetary policy in June.
The benchmark 10-year US Treasury Note is trading around 4.60%, remaining relatively stable after briefly surging to 4.63% earlier on Friday.
US Dollar Index Technical Analysis: rates still matter
Despite escalating tensions in the Middle East, the US Dollar Index (DXY) may encounter selling pressure. This might seem contradictory, but it aligns with bond prices surging higher, which in turn pushes yields lower. Additionally, both the Japanese Yen and the Swiss Franc are attracting more inflows compared to the Greenback in the race to safe havens. This creates a mixed picture, and with markets having already factored in this morning’s events, the US Dollar could see a slight easing, potentially causing the DXY to briefly slip back below 106.00 by Friday’s close.
Looking ahead, the key level to surpass on the upside is Tuesday’s high at 106.52. Beyond that, resistance could be encountered at the 107.00 round level, with further resistance at 107.35, the high from October 3.
On the downside, the first significant level of support is at 105.88, a pivotal level since March 2023. Below that, support levels at 105.12 and 104.60 are likely, followed by the region around the 55-day and 200-day Simple Moving Averages (SMAs) at 104.17 and 103.91, respectively.
