Support is currently being provided by the 50-day moving average at 98.654 and the 200-day moving average at 98.500. Crossing to the bearish side of these indicators will put the market in a weak position, but sellers could run into headwinds at the 98.097 to 97.496 retracement zone. In other words, counter-trend buyers could re-emerge.
The War Bid Is Coming Out
When the conflict between the U.S., Israel and Iran was at its peak, the dollar caught strong bids. Oil was spiking, stocks were struggling and inflation fears were running hot. The dollar was one of the few places to hide and money poured in. The ceasefire changed that calculation. Traders who built up defensive dollar positions started unwinding them and the selling accelerated through the week. The tail risk that justified the safe-haven premium has faded and the dollar is giving back what it gained on fear.
CPI Gives the Fed No Reason to Act
I looked at the March CPI number and the first thing I did was strip out energy. The headline came in at 0.9% month over month and 3.3% year over year and it looks alarming until you see that energy prices alone jumped 10.9%. That’s the war showing up in one line item. It isn’t broad inflation and the Federal Reserve knows the difference. Core CPI was up just 0.2% on the month and 2.6% on the year, both slightly below expectations. That’s the number that matters and it isn’t telling the Fed to do anything.
February PCE backed that up. Up 0.4% month over month and 2.8% year over year. Still above the 2% target but not moving in the wrong direction fast enough to force action. The Fed stays patient. Patient Fed means no rate hikes on the horizon and no rate hikes means no support for the dollar through the yield channel. That’s the mechanism that’s working against the U.S. Dollar Index right now.
Broad Dollar Selling Across the Major Pairs
The 10-year U.S. Treasury yield pushed up to 4.321% and the U.S. Dollar Index still went down. That’s the tell right there. Rising yields normally pull the dollar higher. When that relationship breaks down it means positioning is running the show, not fundamentals.
