The US Dollar Index (DXY) moved sharply on Monday, dropping from about 100.30 to near 99.75 before recovering to around 100.00. A 200-period moving average on the intraday chart limited the rebound, as a risk-on mood supported equities.
A 45-day ceasefire draft put together by Egyptian, Pakistani, and Turkish mediators was rejected by Iran. Tehran said it would only accept a permanent end to the war with guarantees, while WTI oil stayed above $112 per barrel and attention turned to President Trump’s Tuesday deadline linked to the Strait of Hormuz.
The ISM Services PMI came in at 54 versus 55 expected, down from 56.1 in February. The Employment Index fell to 45.2 from 51.8, the lowest since December 2023, while the Prices Paid Index rose to 70.7 from 63 and New Orders increased to 60.6 from 58.6.
Wednesday brings March FOMC Minutes, followed on Thursday by February PCE, with Core PCE seen at 0.4% MoM and 3% YoY, plus Q4 GDP and jobless claims. Friday’s CPI is forecast at 0.9% MoM versus 0.3% previously, lifting YoY to 3.3% from 2.4%, with Core CPI at 0.3% MoM and 2.7% YoY; UoM sentiment is seen at 52 from 53.3.
On a 5-minute chart, DXY was 100.03 with support at 100.00, then 99.96 and 99.90. Resistance is near 100.03 and 100.10.
The US Dollar is currently caught, showing us it has no clear direction around the 100.00 mark. Yesterday’s economic data painted a stagflationary picture, with the employment index falling to its lowest since December 2023 while prices paid surged, complicating the Federal Reserve’s next move. This kind of uncertainty means we should be looking at options strategies that profit from volatility, rather than trying to pick a direction.
With Friday’s Consumer Price Index (CPI) report being the main event this week, we should prepare for a significant market move. The market expects a massive 0.9% monthly jump, and any surprise could trigger a violent reaction, much like the DXY’s 2% single-day drop after the cooler-than-expected CPI print back in November 2022. We can use derivatives like straddles or strangles on major currency pairs to position for this expected spike in volatility, regardless of the direction.
The tension with Iran is the direct cause of elevated oil prices, which are fueling these inflation fears. While the Dollar hasn’t gained a strong safe-haven bid yet, we should watch derivatives on WTI crude oil, as it is the source of the market’s current anxiety. We’ve seen in the past, such as during the 1990 Gulf War, how quickly geopolitical events in the Strait of Hormuz can cause oil prices to more than double in a matter of months.
The conflicting economic signals—weakening employment but strong inflation—put the Fed in a very difficult position. This policy uncertainty will be most visible in interest rate derivatives, so we should monitor Fed Funds futures closely for shifts in market expectations. Just as we saw last year, in 2025, the market was forced to aggressively re-price the path of interest rates several times, and this Friday’s data could easily be the catalyst for another one of those major shifts.
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