Dollar Hovers Near 10-Day Low as U.S. and Iran Reach Peace Agreement

Dollar Index on the Economic Level  

The U.S. dollar traded near a 10-day low against other major currencies on Monday, as a preliminary agreement to end the war between the U.S. and Iran led to lower oil prices and increased demand for high-risk assets.

On Sunday, U.S. and Iranian officials announced a preliminary agreement to end the conflict between the two countries, lift the U.S. embargo on Iran, and reopen the Strait of Hormuz.

The memorandum of understanding is scheduled to be formally signed on Friday in Switzerland, but caution remains as markets await further details, leaving the fate of Iran’s nuclear program to further negotiations.

Central Banks Under Scrutiny

Major central banks, including the Federal Reserve, the Bank of Japan, the Bank of England, and the Reserve Bank of Australia, announce their interest rate decisions this week, as markets await to see whether the prospects of a peace deal will ease inflation concerns and influence the current path of monetary tightening.

The Federal Reserve is widely expected to keep interest rates within the current range of 3.5% to 3.75% on Wednesday, but attention will turn to the monetary policy statement and press conference to see what new Chair Kevin Warsh will indicate.

It is worth noting that investors have scaled back their bets on interest rate hikes this year and now estimate the probability of a December hike at around 50%, down from over 70% last week.

The Dollar Index on a technical level

The index completed the harmonic bat pattern on the daily chart, rebounding from the 100.30 level where the pattern was completed, as it continues to trade within an ascending price channel that it is expected to break downwards.

If it breaks below and closes below the channel and the 99.30 support level, expectations point to further declines toward 98.90 and then 98.00. This scenario would fail if the price rises back into the upward price channel.