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Amid a better risk mood so far this week, the dollar has also struggled a fair bit. The fate of the currency seems tied to oil prices, which are also losing a bit of traction despite WTI crude keeping above $90 levels. Likewise, the dollar might still be trading well higher compared to where we were at the start of the month but is the momentum starting to wane?Well, things are certainly heating up as we get into European trading later with these two key charts to keep an eye out for. The first being EUR/USD as it ramps back up above 1.1500 this week:The currency pair has not traded back above both its key hourly moving averages since the US-Iran conflict started. The near-term momentum was tested last week but the 200-hour moving average (blue line) held firmly. Now, we’re starting to see price action run back up against the key level again today. That is seen at 1.1546 currently.A firm break above that will shift the near-term bias to being more bullish instead. So, that will be a key shift in sentiment to be mindful of as we are also seeing stocks keep higher this week with bond yields dropping.Next up, we also have USD/JPY facing up against a similar dilemma:The currency pair is also pushed down towards its 200-hour moving average (blue line), seen at 158.66 currently. Similar to EUR/USD above, a firm break below this one will see the near-term bias shift to being more bearish instead.In other words, dollar buyers will lose further momentum as sellers seize near-term control after weeks of not doing so. In the case of USD/JPY, it has not traded below both its key hourly moving averages in four weeks. So, that will mark a material shift in trading sentiment.As things stand, the Middle East conflict remains the number one thing to watch out for. And the dollar’s fate is very much tied to that and oil price developments still. But for now, traders are looking for some scope of improved market optimism it would seem. However, is that conviction and bias misplaced? That remains to be seen.Besides that, currency traders and the dollar especially will have to keep an eye out for the Fed decision later today too. So, remember to mark that down in your calendars.
This article was written by Justin Low at investinglive.com.
💡 DMK Insight
The dollar’s recent struggles highlight a crucial interplay with oil prices, and here’s why that matters: As oil prices hover above $90, any decline could further weaken the dollar, especially if risk sentiment improves. Traders should keep an eye on how this dynamic unfolds, as a sustained drop in oil could trigger a broader sell-off in the dollar. This correlation is particularly relevant for those trading USD pairs, as movements in oil often influence inflation expectations and, consequently, Fed policy. If oil dips significantly, we might see the dollar index testing key support levels, which could open up short opportunities for savvy traders. On the flip side, if oil prices stabilize or rebound, the dollar could regain strength, making it essential to monitor both markets closely. Watch for any news or data that could impact oil supply or demand, as these will likely ripple through to the dollar’s performance. Keeping an eye on the daily charts for both oil and the dollar index will provide insight into potential trading setups.
📮 Takeaway
Monitor oil price movements closely; a drop below $90 could signal further dollar weakness, impacting USD pairs significantly.
