The US Dollar Index (DXY) was steady near one-week highs on Wednesday, trading around 98.40 after an intraday low of 98.21. Moves came as the US-Iran ceasefire extension was viewed as a pause rather than an end to hostilities.
US President Donald Trump extended the ceasefire shortly before it was due to expire. Iran had not formally accepted it, citing the ongoing US naval blockade, which Tehran called an obstacle to talks.
Risk sentiment improved after the announcement, supporting risk-sensitive assets. Tensions around the Strait of Hormuz, a key oil shipping route, helped keep the dollar supported.
Oil prices stayed elevated, adding to inflation concerns and lowering expectations of near-term Federal Reserve rate cuts. Markets increasingly price the Fed holding rates through 2026.
A Reuters poll showed 56 of 103 economists expected the Fed’s benchmark rate to be 3.50%–3.75% by end-September. In late March, nearly 70% had expected at least one rate cut; 71 economists still expect at least one cut by year-end.
On Thursday, focus shifts to weekly Jobless Claims and preliminary S&P Global PMI data. Technically, DXY is below the 100-day SMA (98.48), 200-day SMA (98.53) and 50-day SMA (98.81), with support at 98.00 and 97.63; RSI is near 44 and MACD remains negative.
With the US Dollar Index caught between supportive fundamentals and bearish technicals, we see an opportunity in options. The current uncertainty surrounding the US-Iran naval blockade creates a scenario where a sudden escalation or a genuine breakthrough could cause a sharp move. Traders could consider straddles on dollar-related currency pairs, which would profit from a significant price swing in either direction.
The ongoing tension in the Strait of Hormuz, through which about 20% of the world’s oil flows, directly impacts energy prices. We recall similar spikes during the 2019 flare-up in the region, which suggests history could repeat itself. Buying call options on WTI or Brent crude futures is a straightforward way to bet on the conflict worsening and oil prices climbing further.
This geopolitical uncertainty is keeping market anxiety elevated, with volatility indexes like the VIX trading near 22, well above the year’s lows. This reflects a nervous market that is bracing for a potential shock from the Middle East. We can use VIX futures or options to hedge portfolios or speculate on a further increase in market fear should the naval blockade lead to direct conflict.
We should also pay close attention to interest rate derivatives, as the prospect of sustained high oil prices is changing the Federal Reserve’s path. Markets are now pricing in less than a 20% chance of a rate cut by September, a major reversal from late 2025 when multiple cuts were widely anticipated. Selling SOFR or Fed Funds futures allows us to position for a Fed that is forced to keep rates higher for longer to combat inflation.
Alternatively, if we believe this standoff will drag on without resolution, the dollar may remain trapped in its current range. The index is clearly capped by moving averages around the 98.50 level while finding support near 98.00. An iron condor strategy on the DXY would be profitable if the index stays between these key technical levels in the coming weeks.
