US Dollar Retreats as Markets Bet on Hormuz Breakthrough

Traders' Opinions

Summary:

The US Dollar weakened at the start of the week as renewed optimism surrounding a potential US-Iran agreement and the possible reopening of the Strait of Hormuz reduced demand for traditional safe-haven assets.

SELL USDX

EXP

TRADING

98.950

Entry Price

96.500

99.450

98.970 +0.090 +0.09%

0.0

Pips

Flat

96.500

Exit Price

98.950

Entry Price

99.450

The US Dollar opened the week on the defensive, retreating sharply during Monday’s thin holiday trading session as improving sentiment surrounding negotiations between Washington and Tehran encouraged investors to scale back safe-haven positions accumulated in recent weeks.

The Dollar Index slipped toward the psychologically important 99.00 level after failing to hold above the 99.30 area, which had acted as the lower boundary of last week’s consolidation range. The decline reflects a broader shift in market sentiment as traders increasingly price in the possibility of a diplomatic breakthrough between the United States and Iran — a development that could significantly reduce geopolitical risks tied to global energy markets.

Investor optimism strengthened after comments from US President Donald Trump suggested that negotiations with Tehran were moving closer to a potential agreement. The remarks triggered a modest improvement in risk appetite across global markets, easing demand for defensive assets such as the US Dollar and US Treasuries.

However, the White House message remains far from straightforward. While Trump indicated that a deal could be approaching, he simultaneously warned negotiators “not to rush into a deal,” underscoring the fragile and highly conditional nature of the ongoing discussions. The President also reaffirmed that the United States would maintain its blockade measures on the Strait of Hormuz until a formal agreement is finalized.

That mixed messaging continues to leave markets cautious rather than fully convinced.

Earlier in the day, US Secretary of State Marco Rubio added to expectations of diplomatic progress, stating that a “fairly strong proposal” currently exists to facilitate the reopening of the Strait of Hormuz. Rubio emphasized that Washington intends to exhaust diplomatic avenues before considering alternative responses, comments that traders interpreted as a sign that military escalation may not be imminent.

The Strait of Hormuz remains one of the world’s most strategically important energy corridors, handling a substantial share of global crude oil exports. Any indication that shipping flows could normalize without further disruption has immediate implications for inflation expectations, oil prices, and broader market risk sentiment.

In my view, markets are beginning to transition away from worst-case geopolitical pricing and back toward macroeconomic fundamentals. That shift explains why the Dollar’s safe-haven premium is fading, even as broader monetary policy expectations remain supportive of the currency over the medium term.

Monday’s moves were also amplified by exceptionally light trading conditions due to the US Memorial Day holiday, which left liquidity thin and price action more sensitive to headlines. With the US economic calendar effectively empty, geopolitical developments remained the sole driver of sentiment.

Attention now turns squarely toward upcoming US inflation data, particularly Thursday’s release of the Personal Consumption Expenditures (PCE) Price Index — the Federal Reserve’s preferred inflation gauge. The report could prove decisive for interest-rate expectations heading into the second half of the year.

Recent US economic data has generally reinforced the narrative that the American economy remains resilient despite elevated borrowing costs and persistent price pressures. Stronger-than-expected consumption figures and stable labor market conditions have reduced fears of an abrupt slowdown, while inflation risks tied to energy and supply disruptions continue to linger beneath the surface.

As a result, financial markets have significantly repriced Federal Reserve expectations in recent weeks.

Before the escalation in Middle East tensions earlier this year, investors had largely anticipated a more cautious Fed path. Now, traders are once again assigning meaningful probability to additional tightening before year-end. According to CME FedWatch positioning, markets are currently pricing in more than a 50% chance of at least one further rate increase this year.

That repricing is likely to prevent a deeper structural decline in the Dollar, even if geopolitical stress continues to ease.

Technical Analysis

From a technical perspective, the US Dollar Index (DXY) remains trapped within a broader bearish-to-neutral structure despite the recent recovery from May lows. On the daily chart, price action continues to struggle beneath a key resistance zone between 99.30 and 99.40, an area that has repeatedly capped bullish momentum and acted as a major supply region throughout the past several weeks. The latest rejection from this barrier suggests that upside momentum is fading once again, with sellers gradually regaining near-term control.

The broader structure indicates that the recent rally from the 97.80 support zone was corrective rather than impulsive. Although buyers successfully defended the 97.80–97.75 region earlier this month, the inability to sustain a breakout above 99.40 confirms that bullish conviction remains limited. The formation of multiple rejection candles near resistance further strengthens the argument that the Dollar Index may be preparing for another leg lower.

Technically, the 99.30–99.40 area now represents the most important short-term resistance region. A decisive daily close above this barrier would invalidate the current bearish setup and potentially trigger a stronger recovery toward the psychological 100.00 level. Beyond that, the next major upside target would emerge near the 100.30–100.40 resistance zone, where heavy selling pressure previously entered the market during March and April.

However, current price behavior suggests that such a breakout remains unlikely in the immediate term. The chart shows weakening bullish follow-through and increasing evidence of exhaustion after the latest upward swing. The projected bearish path illustrated on the chart also aligns with the broader market narrative of fading safe-haven demand for the US Dollar as geopolitical tensions ease and investor appetite for risk gradually improves.

On the downside, initial support is seen around the 98.80 region, which price is currently attempting to break below. A sustained move beneath this level would likely accelerate downside momentum and expose the key structural support at 97.80–97.75. This zone represents the foundation of the recent rebound and remains critical for maintaining medium-term stability in the index.

A confirmed breakdown below 97.75 would significantly weaken the Dollar’s technical outlook and could open the door toward deeper declines into the 97.20 region initially, followed by the 96.50 handle over the medium term. Such a move would confirm a continuation of the broader downtrend that has dominated price action since the first quarter of the year.

From a momentum perspective, technical indicators are beginning to favor sellers once again. The Relative Strength Index (RSI) appears to be rolling over from neutral territory after failing to establish stronger bullish momentum above the midline. This suggests that buying pressure is fading rather than strengthening. Importantly, RSI conditions do not yet indicate oversold territory, meaning there is still room for further downside before exhaustion signals begin to emerge.

Meanwhile, the Moving Average Convergence Divergence (MACD) is showing signs of bearish convergence following the latest rejection near resistance. Momentum bars are gradually weakening, indicating slowing upside momentum and increasing probability of a bearish crossover in the sessions ahead. This reinforces the view that the recent rally may have been a temporary correction within a broader bearish framework rather than the beginning of a sustained bullish reversal.

Overall, the technical structure continues to favor cautious bearish positioning while price remains below the 99.40 resistance barrier. Unless buyers can reclaim and sustain momentum above that level, rallies are likely to attract renewed selling pressure. The broader chart structure suggests the path of least resistance remains tilted to the downside in the near term.

TRADE RECOMMENDATION

SELL US DOLLAR INDEX (DXY)

ENTRY PRICE: 98.95

STOP LOSS: 99.45

TAKE PROFIT : 96.50

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US Dollar Retreats as Markets Bet on Hormuz Breakthrough

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