Instead of continuing the correction, the dollar strengthened again, and the market returned to levels it was at just a couple of days ago. The greenback emerged after Federal Reserve officials delivered statements regarding interest rates. Once again, there were mentions of the possibility of rate hikes. However, more importantly, there was no hint about the possibility of easing monetary policy. Most likely, this is what caused the euro to return to its lowest values since the beginning of 2024.
But now all of this takes a back seat. And quite suddenly at that. Because Israel launched a missile strike on Iran overnight from Thursday to Friday. So far, there are very few details about this. However, in any case, we are talking about further escalation of tension in the Middle East. And the region's slide into a full-scale war has become quite real. From the market's perspective, the situation is extremely complicated. On the one hand, a potential war in the world's major oil-producing region will trigger panic in the markets, primarily in the stock markets, and a flight to safe-haven assets. This, of course, should boost the US dollar, as American investment funds control a large portion of the world's financial capital. In addition, the situation is unfolding right next to the European Union, which should also lead to additional capital flight from risk, specifically to the United States. Because there's nowhere else to go. However, as mentioned earlier, we're talking about the world's largest oil-producing region, which has already led to a sharp rise in oil prices. And there's an inverse correlation between oil and the dollar, which often manifests precisely in moments of significant changes. Moreover, if a full-scale war involving Israel breaks out, the United States will automatically be drawn into this conflict. This clearly does not align with Washington's current interests, as its resources are already stretched to the limit. And this is another factor that will weaken the US dollar.
Considering all of this, the market is likely to adopt a wait-and-see stance and closely monitor the official statements from Tehran, Tel Aviv, and Washington. Geopolitics will determine the further course of events. At this point, it is extremely difficult to make forecasts, especially given the absence of clear information. But in general, things will likely develop in one of two main directions. If Iran decides to ease tensions, the markets will revive, and the dollar will probably strengthen considerably. If the situation escalates further, anything could happen. This includes both the fall and the rise of the US dollar.
The EUR/USD corrective phase ended as quickly as it started. The US dollar's recovery, along with a strong flow of information, returned the price to the support level of 1.0600.
On the four-hour chart, the RSI downwardly crossed the 50 middle line, thus reflecting bearish sentiment among traders.
On the same time frame, the Alligator's MAs indicate a downward cycle.
Outlook
In order to increase the volume of short positions, the price must settle below the level of 1.0600. In this case, the pair could move towards the local low of 2023. Conversely, the area around the 1.0600 level may act as support, leading to a rebound.
Complex indicator analysis indicates a downward cycle in the short- and long-term timeframes.
