Where we are: The Dollar index is holding firm around 119.30, consolidating gains after the recent surge fueled by geopolitical tensions and rising US yields. Overnight, the DXY saw a narrow range, oscillating between 119.15 and 119.45. This level sits well above Friday’s close, underpinned by persistent safe-haven demand and a continued bid in US Treasuries. The 2-year yield is still above 4.0%, providing a strong anchor for the Greenback.
What’s driving it: The primary driver remains the ongoing uncertainty surrounding the conflict in the Middle East, specifically the US-Iran tensions and Gulf War fallout. This has sparked a flight to safety, with the Dollar benefiting as a traditional haven. Furthermore, the Fed’s patient hold stance, reaffirmed in the latest minutes, continues to support the Dollar as markets price in fewer rate cuts. Sticky core CPI, firm payrolls or a re-acceleration in services inflation would push the committee further out, solidifying the Dollar’s gains.
- 10Y real yields are at 2.1%, acting as a headwind for gold and tailwind for the Dollar.
- Net non-commercial positioning in the Dollar is at the 85th percentile, suggesting a crowded long and a potential squeeze risk on any dovish surprises.
- Japan and China are leading the foreign government retreat from US Treasuries, adding further pressure on Asian currencies and supporting the Dollar’s strength.
NY session focus: Watch for the Pending Home Sales release at 10:00 ET, but geopolitical headlines will likely remain the dominant driver. Key levels to watch are 119.00 as initial support and 119.50 as near-term resistance on the DXY. The trade that’s working is buying dips in the Dollar against Asian currencies, particularly the Yen, given the BOJ’s continued dovish stance. The trade at risk is chasing the Dollar higher without confirmation from the bond market. The pain trade would be a swift de-escalation in the Middle East alongside a surprisingly weak US data print that reignites Fed cut expectations.