The U.S. Dollar Index (DXY) held steady in Asian trading on Tuesday, consolidating near the 99.20 level. While gains were relatively modest, the greenback remained generally firm, underpinned by a combination of safe-haven demand and interest rate expectations. Market focus remains squarely on developments in the Middle East. Iran has suspended indirect communications with the United States and is planning more forceful measures in response to the ongoing ceasefire dispute. Concurrently, tensions are escalating around the Strait of Hormuz, significantly heightening market concerns over the security of the global energy supply chain.
The Strait of Hormuz handles approximately 20% of the world's seaborne crude oil shipments and a significant volume of liquefied natural gas exports, making it one of the most critical strategic chokepoints for global energy transport. Iran and its regional allies are reportedly exploring ways to expand their influence over key energy shipping routes, including the Strait of Hormuz and the Bab el-Mandeb Strait, a vital passage connecting to the Red Sea. Furthermore, reports suggest Iran has recently deployed additional maritime defense assets in the Strait of Hormuz, further stoking market fears of potential supply disruptions.
For financial markets, the deterioration in Middle East tensions primarily fuels a rise in risk aversion. Against a backdrop of declining global risk appetite, the U.S. dollar, as the world's primary reserve currency and a safe-haven asset, continues to attract international capital. Simultaneously, the inflation risks stemming from rising energy prices have become a significant factor supporting the dollar. As international crude oil prices rebound sharply, concerns are emerging that the global disinflation trend could be interrupted. Higher energy costs not only impact consumer spending but could also lead to persistently increased production costs for businesses, potentially pushing future inflation higher.
Recent market pricing indicates that some investors are beginning to wager again on the possibility of the Federal Reserve further tightening monetary policy in the future. With inflation expectations heating up, U.S. Treasury yields remain elevated, providing additional support for the dollar. Market analysts suggest that if energy prices continue to rise and drive a rebound in core inflation, the Fed may maintain restrictive policies for a longer duration, which would be favorable for the dollar's trajectory.
However, the market sentiment is not entirely pessimistic. The U.S. President has indicated that communication channels between the U.S. and Iran remain open, suggesting the possibility of an agreement within the next week regarding the restoration of normal navigation through the Strait of Hormuz. This statement has somewhat alleviated market fears of the situation spiraling further out of control.
Meanwhile, Lebanon has called for an expansion of the ceasefire agreement's applicability, hoping to ease regional tensions through diplomatic avenues. Should related negotiations yield substantive progress, it could diminish safe-haven demand for the dollar and alleviate market anxieties over energy supply disruptions.
This week, the market is also set to receive a series of key U.S. economic data releases, including the Job Openings and Labor Turnover Survey (JOLTS) and the non-farm payrolls report on Friday. The performance of the labor market will directly influence market expectations for the Federal Reserve's future interest rate policy.
If U.S. employment data continues to show strength, the market may further raise its expectations for the duration of the high-interest-rate environment, potentially pushing the dollar higher. Conversely, if signs of cooling emerge in the labor market, it could trigger a phase of dollar retracement.
Technical Perspective
From a daily chart perspective, the U.S. Dollar Index recently found support and rebounded near the 97 level and has now reclaimed ground above the key 99.00 psychological level. The MACD indicator formed a golden cross and continues to diverge upward, suggesting that medium-term upward momentum is still strengthening. The RSI indicator is around 58, indicating the market is in a relatively strong state but has not yet entered overbought territory. Immediate key resistance levels are noted at 99.80, 100.50, and the 101.30 region. Support levels are positioned near 98.70, 98.00, and 97.20. The overall trend exhibits a consolidation pattern with a bullish bias.
Observing the 4-hour chart, the Dollar Index continues to trade within a short-term ascending channel. The moving average system is gradually forming a bullish alignment, indicating short-term buying power still holds the advantage. The MACD histogram shows some contraction in the red bars, suggesting short-term momentum has slowed slightly, but the overall structure remains bullish. The RSI indicator is operating near 60, indicating there is further room for the market to move higher. A break above the 99.80 resistance area could pave the way for a challenge of 100.50. A drop below the 98.70 support could trigger a technical correction, although the overall trend has not yet weakened.
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