The US Dollar Index (DXY) rose on Friday, reversing part of Thursday’s fall from a three-week high just above 99.00. It traded near 98.25 in the European session, up over 0.10% on the day.
US-Iran talks remained stalled as Donald Trump said the US would keep Iran under a naval blockade until it agrees to a deal on its nuclear programme. Reports also said the US is considering new military strikes on Iran, adding to concerns about rising tensions, alongside a hawkish tilt from the Federal Reserve.
Technical Levels And Momentum
On the chart, the drop from the 200-day Simple Moving Average paused near the 50% Fibonacci retracement at 98.06. A break below 98.06 could open a move to the 61.8% level at 97.48.
The Relative Strength Index was near 43 and the MACD histogram was slightly negative, suggesting ongoing downside pressure without oversold readings. Resistance levels were noted at the 38.2% retracement at 98.65, the 200-day EMA at 99.06, and the 23.6% retracement at 99.38.
The technical analysis was produced with help from an AI tool.
Looking back at the analysis from 2025, the US Dollar Index was struggling around the 98.25 level. Today, on May 1st, 2026, the situation has evolved significantly with the DXY trading much higher, currently holding near 104.50. This demonstrates that the bullish factors from last year ultimately pushed the dollar into a new, higher range.
The Federal Reserve’s “hawkish tilt” we saw in 2025 has since matured into a sustained period of higher interest rates, with the Fed funds rate holding at 4.75% for the last two meetings. However, with the latest CPI data showing inflation has cooled to 2.8%, markets are now pricing in a 40% chance of a rate cut by the fourth quarter. This shift from guaranteed hawkishness to potential easing creates new uncertainty for the dollar’s direction.
Strategy Implications For Derivative Traders
While the US-Iran naval blockade was a primary driver of safe-haven demand last year, market focus has since broadened. Geopolitical risks now also include ongoing trade negotiations with the European Union, adding a different dimension to dollar volatility. We see this reflected in the Cboe Volatility Index (VIX), which has remained steady around a moderate 15, suggesting caution rather than outright fear.
Technically, the key levels from 2025 around the 99.00 mark are no longer relevant. We are now watching key support for the DXY at its 50-day moving average near 104.10, with significant resistance building towards the 105.00 psychological level. A break below this support could signal that the dollar’s long rally is finally losing momentum.
For derivative traders, this means the environment is ripe for strategies that profit from a potential change in trend. Implied volatility on EUR/USD options has ticked up as traders anticipate a possible pivot from the Federal Reserve later this year. We believe this is a time to consider buying put options on the DXY or dollar-tracking ETFs as a hedge against a reversal.
Positions that benefit from a sideways or slightly declining dollar may be prudent over the next several weeks. Selling out-of-the-money call options on the DXY could be a way to generate income while defining risk, assuming the index remains capped below recent highs. This strategy capitalizes on the view that the dollar’s strong upward momentum is likely exhausted for now.
