The U.S. Dollar Index continued its volatile trading pattern during Tuesday's Asian session, hovering around the 99.80 level. A recent phase of de-escalation in Middle Eastern tensions, with Iran and Israel agreeing to pause mutual attacks following calls from U.S. President Trump for a downgrade, has led to a short-term decline in market risk aversion, thereby weakening the supportive momentum for the dollar.
However, the situation is far from completely stable. Israeli Prime Minister Netanyahu stated that the war with Iran and its supporting forces is "not over yet," despite both sides having seen their capabilities reduced. While the Iranian military confirmed it has ceased strikes on Israel, its central military command warned that Israel would face a "more severe response than before" if it continues attacks in southern Lebanon. This lingering uncertainty could still trigger safe-haven dollar buying at critical moments.
Additionally, robust U.S. employment data continues to fuel market expectations regarding inflation and Federal Reserve policy. Investors are concerned that persistent inflationary pressures could increase the likelihood of further interest rate hikes. According to the CME FedWatch Tool, the market-implied probability of a 25-basis-point rate hike by the Fed in December has risen to 42%, significantly higher than the 14% seen a month ago. This shift provides potential support for the dollar while simultaneously exerting some pressure on non-yielding assets like silver and gold.
In the near term, investors will closely monitor upcoming U.S. CPI and PPI data, as these indicators will shape market expectations for the Fed's future interest rate path. Stronger-than-expected inflation figures could see the dollar maintain its current volatile but firm trajectory, while data falling short of forecasts may lead to a short-term pullback. Overall, the Dollar Index is caught in the crosscurrents of geopolitical developments and Fed policy expectations, suggesting heightened short-term volatility is likely. On the daily chart, the index is consolidating near the 100.00 psychological level, with the overall medium-term trend leaning slightly bullish. The MACD indicator remains near the zero line, with alternating red and green bars indicating a balance between bullish and bearish forces. The RSI hovers around 50, reflecting cautious short-term market sentiment. Key resistance levels to watch are 100.50, 101.00, and 101.50, while support is found at 99.50, 99.00, and 98.50. The 4-hour chart shows the index in a short-term range-bound pattern, with the MACD indicator crossing near the zero line, indicating weak short-term momentum. The RSI remains at neutral levels. A break above the 100.50 resistance could lead to a test of 101.00 and 101.50, while a drop below the 99.50 support may see a retreat towards the 99.00 and 98.50 areas.
In summary, the Dollar Index is expected to maintain its consolidative pattern in the near term. The temporary easing of Middle East tensions has dampened safe-haven demand but has not entirely eliminated uncertainty. Meanwhile, rising expectations for further Federal Reserve rate hikes continue to underpin the currency. This week's U.S. CPI and PPI releases will be pivotal in determining the dollar's short-term direction. Broadly, the greenback is likely to continue trading choppily around the 100.00 mark, experiencing periodic fluctuations driven by the dual forces of geopolitical risk and monetary policy expectations.
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