Is the dollar's upward momentum starting to lose steam?

Dollar Faces Pressure Amid Improved Market Sentiment

This week has seen a more optimistic tone in global markets, which has put the US dollar under some strain. The currency’s trajectory appears closely linked to oil prices, which have started to lose some momentum even though WTI crude remains above the $90 mark. While the dollar is still trading at higher levels compared to the beginning of the month, there are signs that its upward drive may be slowing down.

Key Charts to Monitor in European Trading

As European markets open, two major currency pairs are drawing attention. The first is EUR/USD, which has climbed back above the 1.1500 threshold this week.

The EUR/USD pair has not managed to trade above both of its main hourly moving averages since the onset of the US-Iran tensions. Last week, the pair tested its short-term momentum, but the 200-hour moving average (marked in blue) provided strong support. Now, prices are once again challenging this critical level, currently positioned at 1.1546.

If EUR/USD breaks decisively above this point, it would signal a shift toward a more bullish short-term outlook. This potential change in sentiment coincides with rising stock markets and falling bond yields this week.

USD/JPY Approaches a Pivotal Level

The USD/JPY pair is facing a similar scenario:

USD/JPY is currently testing its 200-hour moving average (blue line), which stands at 158.66. Should the pair fall below this level, it would indicate a move toward a more bearish short-term stance.

In practical terms, this would mean that dollar buyers are losing momentum, allowing sellers to take the lead in the near term—a shift that hasn’t occurred in several weeks. Notably, USD/JPY has not traded below both of its key hourly moving averages in the past month, so a break here would mark a significant change in market sentiment.

Geopolitical Risks and Upcoming Fed Decision

The ongoing conflict in the Middle East remains a major factor influencing the dollar and oil prices. For now, traders appear to be hoping for a more positive market outlook, but whether this optimism is justified remains uncertain.

Additionally, currency markets—especially those focused on the dollar—will be closely watching the Federal Reserve’s policy announcement later today. Be sure to keep this event on your radar.