The US Dollar Index fell 0.50% on Tuesday, slipping below 100.00 for the first time since mid-March and ending a five-session rise. It moved from about 100.65 to around 99.90, after gaining almost 3% month-to-date from January lows near 95.55.
Markets shifted towards risk after Iranian state media said Tehran could end the war if conditions are met and attacks stop. Iran also set the Kuwait-flagged Al-Salmi tanker on fire off Dubai in a drone attack on a ship carrying two million barrels of crude, and earlier rejected a US 15-point ceasefire plan.
Key Data And Market Drivers
US data were mixed: Consumer Confidence rose to 91.8 in March versus 87.8 expected, while Chicago PMI was 52.8 versus 55.0. JOLTS came in at 6.88 million versus 6.92 million forecast, with ISM Manufacturing PMI and February Retail Sales due Wednesday and NFP due Friday (60K expected versus -92K prior).
On charts, DXY was near 99.94, above the 50-day EMA near 98.90 and close to the 200-day EMA near 99.15, with support around 99.50, 99.20 and 98.70. Resistance was listed at 100.00, 100.50, then 100.15–100.30 on shorter timeframes, with intraday support around 99.90 and 99.80.
With the US Dollar Index currently holding firm around 104.30, we see a familiar tension between geopolitics and upcoming economic data. The ongoing disruptions in the Red Sea are keeping a floor under the dollar, as persistent conflict in key shipping lanes supports safe-haven demand. This situation creates a nervous market environment where traders are pricing in a sustained risk premium.
We should remember the sharp reversal we saw last year, in March 2025, when similar hopes for Middle East de-escalation proved premature. The dollar index briefly broke below 100.00 on reports of potential peace talks with Iran, only to snap back violently after Iran attacked a tanker, reminding everyone how quickly narratives can shift. That price action serves as a crucial lesson about selling the dollar too early on unconfirmed geopolitical headlines.
Positioning And Risk Management
Given this history, buying options to hedge against sudden risk-on or risk-off moves is a prudent strategy for the coming weeks. With the VIX volatility index currently subdued near a relatively low 14.5, puts on risk assets or calls on the dollar offer cheap insurance against any escalation that catches the market off guard. We must be wary of headlines that suggest a resolution and instead focus on confirmed actions on the ground.
The immediate focus now shifts to domestic data, with the ISM Manufacturing PMI due this Wednesday and the crucial Non-Farm Payrolls report on Friday. Following last month’s surprisingly strong jobs gain of 275,000, expectations are high for another solid print, which could reinforce dollar strength. However, the manufacturing sector remains a point of concern, with the last ISM reading at a contractionary 47.8.
From a technical standpoint, the dollar index finds significant support near its 50-day moving average at 103.85. As long as we hold above this level, the bullish trend remains intact, with the recent highs near 104.90 acting as the next major resistance. A decisive break below this support would be needed to signal a deeper correction, but for now, the path of least resistance appears to be sideways to higher, especially with key data releases pending.
