Geopolitical Risks Support the Dollar Ahead of Fresh US Data

At the start of the week, the US currency continues to trade near significant levels amid ongoing uncertainty surrounding negotiations between the United States and Iran. Markets are closely monitoring reports suggesting a possible prolongation of the negotiation process and an increased US military presence in the Middle East, both of which are supporting demand for safe-haven assets, including the dollar.

Additional support for the US currency comes from rising US Treasury yields and expectations surrounding upcoming macroeconomic data releases, which could influence further market expectations regarding Federal Reserve policy.

At the same time, the dollar’s movement remains mixed. Despite the recent strengthening of USD/JPY and USD/CAD, both pairs have approached important technical resistance levels, where buying activity is beginning to slow. The market is now assessing whether the current momentum can develop into a broader continuation of dollar strength, or whether the advance in the US currency will remain merely a short-term reaction to geopolitical risks.

USD/JPY

Buyers in USD/JPY have managed to establish the pair above the key 159.00 level. If the 158.70–159.00 range retains its status as support, further growth towards 159.80–160.20 remains possible. A loss of this zone could trigger a downward correction towards 158.00–157.80.

Key events for USD/JPY:

• today at 11:00 (GMT+3): speech by Dallas Fed representative Lorie K. Logan;
• today at 15:15 (GMT+3): US ADP non-farm employment change;
• tomorrow at 02:50 (GMT+3): foreign investment in Japanese equities.

USD/CAD

USD/CAD is also trading within a range after reaching major resistance near 1.3800. Should strong US data be released or demand for the dollar remain firm, the pair may consolidate above 1.3820 and continue rising towards 1.3870. Conversely, weaker interest in the US currency could push the pair below 1.3800 and towards the 1.3750–1.3770 area.

Key events for USD/CAD:

• today at 15:30 (GMT+3): Canadian wholesale sales data;
• today at 23:30 (GMT+3): weekly US crude oil inventories from the American Petroleum Institute (API);
• tomorrow at 15:30 (GMT+3): Canada’s current account balance.

Overall, the dollar continues to retain an advantage amid geopolitical uncertainty and expectations of fresh macroeconomic signals from the United States. Nevertheless, the approach of USD/JPY and USD/CAD towards key technical resistance levels increases the likelihood of the current momentum slowing, while the next directional move will largely depend on incoming US economic data and developments surrounding negotiations between the US and Iran.

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