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The prolongation of the Middle East conflict is holding back the decline in crude oil prices, despite the fact that major oil-producing countries have released their strategic reserves. The indecision of the U.S. president, his lack of understanding of what to do next, as well as constant false statements about "victories" and "progress in negotiations" with Tehran no longer reassure market participants. Against this backdrop, the dollar is opening up fairly broad prospects for strengthening in the Forex market.
Thus, the established relationship in the markets with oil price dynamics, which emerged with the start of the war, may become a broad basis for further growth of the dollar on the Forex market. The main reason for the expected strengthening is the now widely acknowledged rise in inflation in the United States, which, as stated this week by Federal Reserve representative M. Barr, will most likely serve as a reason to maintain the current level of interest rates. This, at the very least, is a strong argument for maintaining current price levels with the prospect of further growth.
Another factor that may support the strengthening upward trend is the possible escalation of the crisis through the deployment of U.S. ground forces. This, it is believed, could lead to heavy casualties and a worsening overall situation, the ultimate outcome of which could be a strike by the United States or Israel on Iran using tactical nuclear weapons. In that case, oil prices would certainly surge, while what would happen to the dollar would be impossible to predict, as there are no comparable precedents in modern history. The U.S. strike on Japan in 1945 cannot serve as an analogy.
The dollar against major currencies will also be supported by the weakness of the currencies in its basket, most of which belong to European countries and economies that are on the brink of collapse.
In addition, in the short term, before any possible escalation of the crisis, the strengthening of the dollar will occur against the backdrop of its continued perception as a safe-haven currency.
Finally, another argument, at least for now, is the expectation that the Federal Reserve, amid increasing inflationary pressure, may raise interest rates in the second half of this year.
What can be expected in the market today?
It is assumed that oil prices will continue to rise due to the existing possibility of a U.S. ground operation in the Strait of Hormuz area. This factor will support the dollar.
Daily forecast:
#USD
The U.S. Dollar Index contract is gaining support and, upon breaking above the resistance level of 100.00 points, may strengthen its upward trend and move toward the 101.50 level. A potential buying level is 100.08–100.10.
EUR/USD
The pair is trading above the 1.1510 level. An escalation of the crisis may again support demand for the dollar, and on this wave, the pair may fall to 1.1415. A potential selling level is 1.1500.
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