The dollar closed at its lowest level since February on Wednesday as investors hoped that the US-Iran war was coming to an end.
The US dollar index closed down 0.6% at its lowest level since February 27. Previously, Axios reported that the White House believed an agreement was imminent with Iran on a one-page memorandum of understanding aimed at ending the conflict. The dollar index rebounded from its intraday low on the back of this news.
Since the report was released, a person familiar with the matter said that Iran is evaluating the proposal. The person said that if an agreement is reached, it will lead to the gradual reopening of the Strait of Hormuz and the lifting of the US blockade on Iranian ports.
Alex Cohen, a foreign exchange strategist at Bank of America, said: “Today, the market seems to have the most optimistic attitude in a while about the possibility of reaching some kind of framework for a peace agreement. The key question is whether this memorandum of understanding is realistic or just another false alarm? So far, the market has given back some of the enthusiasm that was previously priced in.”
Influenced by the initial announcement of the ceasefire agreement in early April, the US dollar, which had its worst month since June, continued to decline in May. Currently, the dollar has dropped back to the level before the US invaded Iran, erasing the gains it made when investors flocked to safe-haven assets at the beginning of the war.
Arup Chatterjee, a strategist at Wells Fargo, said, “The market expects a breakthrough in diplomatic talks due to falling oil prices, a weakening dollar and the strength of risky assets, but Iran has not made any statements or given any signals to support this expectation. We believe that any diplomatic progress will be slow, so there is a risk that market optimism will fade.”
A gauge of short-term sentiment in the currency options market shows that traders are betting on a weaker dollar for the first time since the outbreak of the Iran war in February.
The overnight risk-reversal indicator for the Bloomberg Dollar Spot Index, a theoretical gauge based on the implied potential positions of put and call options on a basket of currencies including the euro and the yen, has had a negative impact on the dollar for the first time since February 18.
The deterioration in the outlook for the US dollar is also reflected in the one-week and one-month currency pairs, although they remain positive, they have fallen to the levels seen three months ago.
Technical analysis:
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Gold: The price has returned above 4700 and is currently showing a converging consolidation pattern, awaiting Iran’s response to the latest agreement demands from the United States in the evening. If progress can be made between the two sides, the gold price may continue to hold above 4700. We will attempt to arrange a buy operation on a pullback after a breakout within the day. For detailed positions, please consult the plugin.
(Gold 15-minute chart)
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The Nasdaq index: The price continued to rise overnight, reaching above the 28,600 level. If there are further reports of progress in the US-Iran talks during the day, the price may continue to surge. If the talks are hindered, the price may pull back to the liquidity around 28,300. After the pullback is completed, we will look for opportunities to catch the rebound signal. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: The price dropped below the $90 mark overnight but then returned to the $95-96 range and began to consolidate. Today, we hope to see the price clear the liquidity near $98 and then show a pullback signal before considering attempting to catch a short signal. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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Today’s key financial data and events to focus on:
17:00 Eurozone retail sales for March
20:30 U.S. Seasonally Adjusted Initial Jobless Claims (in thousands) (to May 2)
