The war in the Middle East has triggered a wave of risk aversion! The dollar rebounds against the trend, with Fed's resolution fighting against geopolitical risks this week

On the Asian session on Monday, the US dollar index fluctuated slightly. Against the backdrop of the global financial market surging, on Friday (June 13), the sudden escalation of the geopolitical situation in the Middle East has injected new uncertainty into the foreign exchange market, bond market and gold market. Israel launched a large-scale military strike against Iran, and Iran quickly counterattacked with drones. Global investors, driven by risk aversion sentiment, flocked to traditional safe-haven assets such as the US dollar, US Treasury bonds and gold, pushing up the prices of these assets. At the same time, although the US dollar index recorded an uptick on Friday, it still faces pressure from a weekly decline overall, and market sentiment seems particularly fragile under the interweaving of multiple factors.

Analysis of major currencies

United States dollar: As of press time, the US dollar index hovered around 98.23, up 0.12% during the day. The dollar rose against major currencies such as the euro and the yen last Friday, and Israeli attacks on Iran led to intensifying geopolitical tensions in the Middle East, and markets bought safe-haven assets. Markets will focus on this week's Fed resolution, which is widely expected to keep interest rates unchanged, and investors will focus on the latest forecasts of the Fed that will reveal how much policymakers value recent weak data, and what extent of risk they see as pending trade and budget issues and intensifying conflict in the Middle East. According to the daily chart, the bearish bias of DXY remains unchanged as the index remains below the key 100-day index moving average (EMA). In addition, the downward momentum is supported by the 14-day Relative Strength Index (RSI), which is below the midline near 39.50, supporting sellers in the short term. The initial support level of the US dollar index appears at 98.00, representing the Bollinger Band belowLimit and psychological markers. Further south, the next battle for the position is 97.61, the low on June 12. The additional downside filter to be paid attention to is 96.55, the low on February 25, 2022.

Euro: As of press time, the euro/dollar hovered around 1.1543, down 0.05% during the day. Despite the pullback, the euro/dollar appears ready to resume its uptrend as ECB officials become slightly hawkish and news of U.S. negotiations with China may provide relief to investors. However, the escalation of the Israel-Iran war puts downward pressure on the pair. Technically, the upward trend of the EUR/USD remains, with the pair having recorded higher highs and lows in succession. In addition, momentum remains bullish, with the Relative Strength Index (RSI) remaining above the neutral 50 level, although pointing downward.

GBP: As of press time, GBP/USD hovered around 1.3551, down 0.15% during the day. The Bank of England will also usher in an interest rate decision this week. Data released this week showed that the UK economy shrank by 0.3% in April, and the UK's unemployment rate rose, increasing the possibility of interest rate cuts. News of a decline in UK GDP also indicates that the Bank of England may cut interest rates in August. He said GDP fell 0.3% in April, supporting the unsustainable view of a 0.7% increase in the first quarter. But the second-quarter data could exaggerate the extent of economic weakness, thereby alleviating concerns about the recession. However, Dales said the country's economy will be dragged down as new tariffs lead to weak overseas demand and domestic www.barborka.infopanies cut spending to make up for the rising costs caused by tax increases in April. He added that these factors are not enough to prompt the Bank of England to cut interest rates next week. Judging from the technical figure, the GBP/USD has been under pressure and pullback at a high level recently, with short-term support at 1.3500 mark. If it falls below, it may further fall to the 1.3450 or even 1.3400 area. The initial resistance above focuses on the 1.3600 integer digit. If it is effectively broken, it is expected to re-explode the 1.3650 and 1.3700 areas.

Summary of news from the foreign exchange market

1. Israeli attack killed nearly 130 people in Iran

The battle lasted for the third day. Israel attacked Tehran on Sunday, while Iran launched multiple waves of drones and missiles. Israeli Emergency Services said that the Iranian attacks have killed 14 people and injured nearly 400 people since last Friday. Israeli Prime Minister Benjamin www.barborka.infoanyahu said earlier on Sunday: "IranA very heavy price will be paid for the intentional killing of civilians, women and children. ”

Iranian media reported on Sunday that Israel’s attacks in the past two days killed at least 128 people and hundreds of others injured. Iranian President Pezekichijan said on Sunday that the Iranian army has so far responded strongly and appropriately to Israel. Israel will face tougher retaliation if it continues to take hostilities.

2. Germany, France and Britain propose negotiations on Iran’s nuclear program

German Foreign Minister Wadefur said that Germany, France and Britain are ready to hold talks with Iran on Tehran’s nuclear program to ease the situation in the Middle East. Wadefur, who is visiting the Middle East, said he is working to contribute to the downgrade of the conflict between Israel and Iran, noting that Tehran has not seized the opportunity to engage in constructive negotiations before. “I hope this is still possible,” Wadefur said. “Germany, France and Britain are ready.” We propose that Iran negotiate immediately on the nuclear program, and I hope this proposal will be accepted. "This is also a key prerequisite for reaching a conflict reconciliation, that is, Iran will not pose a threat to the region, Israel or Europe. ”

3. Bank of England’s monetary policy prospect

The Bank of England will hold a monetary policy meeting on June 19. The market generally expects it to maintain the benchmark interest rate unchanged at 4.25%. However, the recent continued deterioration in labor market data, slowing wage growth and improving the inflation outlook in the service industry have created conditions for the central bank to implement interest rate cuts in August and November. Analysis believes that the current policy interest rate is still in a clear tightening range, which provides the central bank with sufficient policy adjustment space.

4. Lagarde: US tariff measures have caused a "multiple loss situation"

European Central Bank Governor Lagarde recently said that the uncertainty brought by a series of tariff measures and threats of the US government is curbing global investment, causing all institutions to lower their growth expectations for the global economy, the US economy and the European economy. "The situation we are facing is indeed a multi-loss situation. "Lagarde told reporters in Beijing on the 12th that the sooner the uncertainty is eliminated and the sooner the parties reach an agreement on tariffs and non-tariff barriers, the greater the benefits for everyone. She stressed that both investors and business operators face huge difficulties in dealing with uncertainty. The same is true for the central bank, because the central bank needs to predict economic trends and price levels. "With this huge uncertainty, our lives will become very difficult."

5. Market objectives Focus on the Federal Reserve

The market focus this week will turn to the Federal Reserve, especially Chairman Powell will speak after next week's monetary policy meeting. Economists generally expect the Federal Reserve to keep interest rates unchanged. However, market expectations that Powell may begin paving the way for a rate cut later this year are increasing. Latest inflation data and signs of a slowdown in the U.S. provide room for the Federal Reserve to cut interest rates. However, growing geopolitical uncertainty may prompt some marketsParticipants adjust their expectations.

Institutional View

1. ANZ: Powell may continue to be patient and wait and see

ANZ pointed out in his report to clients that the Federal Reserve meeting this week is likely to maintain the target interest rate of the federal funds. Although the latest macroeconomic data shows that the job market has cooled down, it remains relatively resilient. The bank believes that the stability of the job market has given the Fed time to pay attention to the upcoming inflation report as tariff hikes and rising inflation uncertainty. ANZ expects Federal Reserve Chairman Powell to continue to emphasize patience, pointing out that monetary policy is in a good state and can respond appropriately to developments.

2. Institutions: The dollar remains a safe haven amid geopolitical tensions

MonexEurope analysts said in a report that the dollar's strength after Israel's attack on Iran's nuclear facilities should make those who think the dollar is no longer a safe haven currency. They say unstable U.S. policies weaken the dollar's safe-haven appeal, but major geopolitical shocks still favor the dollar. "After all, the U.S. economy is relatively less affected by this damage than other safe havens." They said the balance between tariff concerns and geopolitical concerns should be the main market driver at present.

3. Huachuang Securities: The next two to three months will be an important window for the Federal Reserve to observe inflation. Huachuang Securities released a research report saying that the US CPI in May was once again slightly lower than expected. CPI rebounded from 2.3% year-on-year to 2.4%, while Bloomberg expected 2.5%; core CPI remained flat at 2.8% year-on-year, while Bloomberg expected 2.9%. CPI was 0.1% month-on-month, lower than expected and 0.2% of the previous value; core CPI was 0.1% month-on-month, expected and 0.3% of the previous value. Unless Trump continues to suspend or cancel reciprocal tariffs due to negotiations this year, the upward risk of inflation is still worthy of vigilance. The next two to three months will be an important window for the Federal Reserve to observe inflation. Before that, it is likely to remain silent (the CPI situation in June-August can be seen before the FOMC meeting in September).

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