DXY fell more than 0.5% on Wednesday, reaching about 99.30 after opening near 99.90, and extending Tuesday’s move below 100.00. It also unwound part of March’s 2.3% rally from January lows near 95.55. The move followed a post by President Trump saying Iran’s president had asked for a ceasefire, with US conditions tied to the Strait of Hormuz being “open, free, and clear”. Trump also said late Tuesday that US forces could leave Iran within two to three weeks, while Iran’s foreign minister rejected threats and deadlines. US data were firm, with ADP employment change at 62K versus 40K expected, and February retail sales up 0.6% month on month versus 0.5% expected. ISM Manufacturing PMI was 52.7, and the Prices Paid index rose to 78.3 from 70.5, above 73 expected. Friday’s NFP is due, with a 60K consensus after a prior -92K print. Traders were also watching for Trump’s national address later on Wednesday. On a 5-minute chart, price was 99.34, below the 200-period EMA near 99.60, with resistance at 99.45, 99.60, and 99.75, and support at 99.30 and 99.20. On a daily chart, price held above the 50-day EMA near 98.90 and the 200-day average around 99.10, with resistance at 99.90 and 100.50, and support at 99.00–98.90 then 98.50. The US Dollar accounts for over 88% of global FX turnover, or $6.6 trillion per day, based on 2022 data. The Fed targets 2% inflation, and its policies include rate changes, quantitative easing, and quantitative tightening. We remember well the DXY’s sharp drop below 100.00 in the spring of 2025, which was driven entirely by the sudden US-Iran de-escalation narrative. That episode serves as a powerful reminder of how quickly safe-haven trades can unwind on a shift in geopolitical sentiment. For derivative traders, this highlights the risk of being overly exposed to a one-directional trade based on conflict. That period in 2025 taught us that headline-driven volatility must be respected, even when a trend seems solid. We saw the Cboe Volatility Index (VIX) spike to over 25 in the weeks leading up to that de-escalation news before collapsing, crushing anyone who was long volatility too late. This pattern suggests that in the coming weeks, it is more prudent to buy options to hedge risk rather than to speculate on volatility itself. Back in March 2025, strong data like the 78.3 ISM Prices Paid was completely overshadowed by the ceasefire talk. Today, the situation is reversed, as fundamentals are firmly in control with the latest Consumer Price Index (CPI) data for the first quarter of 2026 showing core inflation stubbornly holding at 3.7% year-over-year. This persistence means that unlike last year, economic data, especially inflation reports, will likely have a much larger and more immediate impact on dollar valuation. Given this, traders should consider using options to define their risk around key economic releases, such as the upcoming Non-Farm Payrolls report. The 2025 event showed that a strong dollar position can be vulnerable to a non-economic shock, so purchasing out-of-the-money puts on a dollar-tracking ETF like UUP could be a cost-effective way to insure against a sudden reversal. This strategy allows for participation in the dollar’s strength while capping potential losses from an unexpected shift in market mood. The Federal Reserve’s path was a secondary concern during that moment of geopolitical focus in 2025, but now it is the market’s primary driver. With the Fed’s latest dot plot showing a median forecast for only one interest rate cut in 2026, down from three projected late last year, the market is hanging on every word from officials. Any deviation from this hawkish stance could trigger significant dollar weakness, a risk that must be managed. Technically, the 99.00-99.10 zone that served as key support for the DXY in 2025 is now a distant floor. As the Dollar Index currently trades in a tight range around 104.75, the immediate battle is over holding the 50-day moving average near 104.20. A break below this level could signal a deeper correction, and traders could use this as a trigger to add to bearish dollar positions via options or futures.

Start trading now – Click here to create your real VT Markets account