US Dollar turns the page on the Petrodollar trade for FOMC week – DXY Outlook

• The US Dollar falls from its past week highs despite Oil rising with traders getting ready for a busy FOMC week
• FX Market correlations with Oil are slowly breaking as the conflict resolution remains in a chaotic fog
• US Dollar Index (DXY) in-depth Technical Analysis

The US Dollar is aggressively backing down from its recent highs, ignoring a fresh surge in crude oil as traders brace for an important FOMC week (and don’t forget tonight’s Bank of Japan meeting!).

For the past months, the FX market operated on the Petrodollar trade, with Oil and the USD holding a close to perfect correlation.

Since late February, the Greenback reliably tracked every major spike in energy commodities.

Today, however, that correlation is breaking down, following a progressive decoupling from Oil asset flows.

Despite WTI Crude exploding back up to the $97 handle—a strong 4% surge on the session—the US Dollar is refusing to follow suit.

Instead of catching a bid, the currency is now easing from its 1% rise last week, signalling that investors are now turning the page on the petrodollar trade (however, that relation could rise again if WTI crosses above $100).

This pricing divergence comes as the geopolitical conflict resolution continue to evolve into a chaotic fog.

While the latest headline chatter continues to tease a potential Iranian reopening of the Strait of Hormuz, contingent on the US ending their blockade, but nothing clear has materialized in that direction.

Diplomatic progress remains completely deadlocked as Iran stubbornly maintains exceptionally high demands, reportedly insisting on the preservation of its regional proxies and the permanent closure of U.S. military bases in the area.

Interestingly, the only notable outperformance action for the Greenback was a striking gap higher right at the weekly open.

However, with no particular fundamental catalysts accompanying the move, sellers aggressively stepped in and faded the gap, dragging the central reserve currency significantly lower throughout the session.

We’ll explore a few scenarios for this week’s action in an in-depth technical analysis of DXY.

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The US Dollar is maintaining a fairly mixed price action after the post Ceasefire tumble, confirming how confused FX markets have been.

While a resolution to the conflict would take out the premium accumulated through the war, most of the move has already been done and the dollar is now forming a consolidation range between 98.00 to 99.40 until further news.

Testing the 200-Day MA, it will be interesting to see if buyers head back into the currency to retest the weekly gap.

Failing to do so point to further mean-reversion to the downside.

FOMC communications will be interesting to observe (higher for longer, or turning the page on Oil-led inflation).

The weekly gap higher surprisingly stalled right at the 4H 200-period MA (99.25) and now rebounding at the 50-period MA (98.36), so keep these two indicators closely in check ahead of the FOMC.

It seems that the current hesitancy is providing consolidation setups, and watch for breakouts beyond any of them after the FOMC.

For now, the major downside correction has stalled, so make sure to be patient before pushing for continuation moves.

Levels to place on your DXY charts:

Resistance Levels

• 99.25 4H 200-period MA
• 99.30 to 99.50 Resistance
• 100.00 to 100.50 Main resistance and Range highs
• War Highs 100.544 (Double Top)

Support Levels

• 98.36 4H 200-period MA
• 98.00 Major Support (rejecting)
• Support 97.40 to 97.60
• 2025 Lows Major support 96.50 to 97.00
• Range lows at Early 2022 Consolidation just below 96.00

Safe Trades and keep track of the latest headlines!

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