Where we are: The DXY is trading around 118.75, consolidating overnight gains, following a period of sideways movement. This is slightly above Friday’s close. Key levels to watch are 119.00 as resistance and 118.50 as immediate support. The market appears to be waiting for fresh catalysts before committing to a direction.
What’s driving it: The dollar’s strength is primarily underpinned by the Federal Reserve’s patient stance. The FOMC reaffirmed its data-dependent approach at the last meeting in March, with the dot plot signalling only two potential rate cuts in 2026. Rising oil prices and escalating tensions in the Strait of Hormuz are also contributing to the Greenback’s appeal as a safe haven. Meanwhile, Barclays recently joined the camp expecting no Fed rate cuts this year, reinforcing the higher-for-longer narrative that favors the dollar.
- US 10Y real yields continue to fall, now at 1.94%, providing a tailwind for gold and indirectly supporting the dollar through inflation fears.
- Speculator positioning in the dollar remains crowded long, at the 92nd percentile, increasing the risk of a sharp squeeze if data disappoints.
- The 2s10s spread is at 0.51%, indicating a mildly positive yield curve, reflecting cautious optimism about the US economic outlook.
NY session focus: All eyes will be on incoming US economic data, especially leading into the May 7th Fed meeting. Today, traders will be eyeing any further developments regarding Middle East tensions, which could impact risk sentiment. The 08:30 ET data print will be critical for intraday direction. The trade that’s working right now is fading risk rallies in G10, buying USD dips. The trade at risk is shorting USD into sticky inflation. The pain trade for the dollar is a surprisingly dovish tilt from the Fed combined with a significant de-escalation in geopolitical tensions.