Iran War Uncertainty

The US Dollar is starting the week on a softer footing as traders await incoming news around the Iran war. Trump has threatened a major escalation of the conflict if Iran doesn’t reopen the Strait of Hormuz today with oil prices set to explode higher if Iran refuses. For now, we’re likely seeing some profit taking ahead of this deadline with oil prices cooling from initial highs also. If we hear any positive news on the negotiations front and Trump extends the deadline or Iran agrees to a compromise (partial reopening), this should see USD cooling further as oil price come off. However, if no deal is done and Iran and Israel press ahead with fresh attacks, energy prices should push much higher, taking USD with them.

NFPs Bounce Back

Away from developments in the Middle East, Friday’s US jobs reports offered fresh support for the Dollar and added to hawkish Fed expectations. The headline NFP print soared back up to 178k from -133k prior (downwardly revised), much higher than the 65k the market was looking for. Similarly, the unemployment rate was seen falling to 4.3% from 4.4% prior and expected. The only slight weakness was in wage growth which fell to 0.2% from 0.4% prior and 0.3% expected. On the whole, the data shows a strong rebound in the jobs market following the post-holiday period and recent extreme weather we’d seen. If jobs stay robust and inflation continues to push higher on elevated energy prices, USD is likely to rally as traders further scale back any easing expectations for the Fed.

Technical Views

DXY

For now, DXY remains capped by the 100.36-level resistance. Price is currently testing the bull channel support with 99.15 the deeper support level to watch if we push lower here. While that support remains, the broader focus is on an eventual break higher with 101.91 the higher bull target to note.