US Dollar Price Forecast: DXY Drifts Lower Amid Ceasefire Calm; GBP/USD and EUR/USD Eye Upside Moves
By Arslan Ali | Published May 7, 2026, 10:55 GMT
As the ceasefire between the United States and Iran approaches a full month, the US Dollar is showing signs of easing safe-haven demand, prompting market watchers to consider renewed strength for major currency pairs such as GBP/USD and EUR/USD. The broader risk appetite appears to be recovering as geopolitical tensions subside, impacting currency markets and shaping forecasts for the near term.
Ceasefire Stability Weighs on US Dollar Demand
The sustained truce between Washington and Tehran has notably reduced geopolitical fears, which traditionally bolster the US Dollar through its safe-haven status. Alongside this, tanker traffic is gradually resuming through the strategically critical Strait of Hormuz, diminishing concerns over energy supply disruptions that had previously fueled dollar strength amid uncertainty.
These developments are encouraging investors to pivot towards riskier assets, thereby diminishing demand for the greenback. This backdrop has helped the Euro and British Pound gain some traction, with both currencies benefiting from investors’ improved sentiment and a corresponding dip in the dollar premium.
Dollar Index (DXY) Sinks Below Key Resistance
The US Dollar Index (DXY) is currently hovering around 97.85, showing a downtrend after respecting a descending trendline originating from April highs. The DXY has encountered resistance near 98.10, reinforced by the 50-period moving average on the 2-hour timeframe, limiting any rally attempts.
Technical analysis highlights a horizontal support level at 97.61, which remains intact for now, though recent bearish candle wicks suggest some underlying weakness. The momentum indicator, RSI, is congregated just above 48, indicating subdued bullish momentum.
If selling pressure persists, the index may test lower Fibonacci retracement levels near 97.29 to 96.94. Market volume data confirm 98.10 as a significant resistance zone. As such, the dollar appears trapped within a multi-week descending channel, implying further downside potential unless it breaches the upper boundaries decisively.
Trade idea: Consider short positions near 97.84 targeting 97.29 with stop-loss set above 98.10. ### GBP/USD Advances Within a Rising Channel
The British Pound to US Dollar pair (GBP/USD) is trading at approximately 1.3625, pushing towards the upper boundary of a rising channel formed since late April. Price action has been holding above the 1.358 support level, with bullish momentum sustained by strong green candlesticks and higher lows.
RSI momentum is gaining strength, nearing 58, which supports a continued upward bias. Resistance is anticipated between 1.365 and 1.367, close to recent highs. Volume profile analysis points to 1.36 as an influential pivot area, reinforcing the current bullish setup.
Trade idea: Buying near 1.362 with targets around 1.367, placing stop-loss orders below 1.358 could be a prudent approach.
EUR/USD Defends Critical Support; Bulls Eye Higher Levels
The Euro against the US Dollar (EUR/USD) pair is steadying at about 1.1771, successfully defending a key upward trendline extending from April lows. The pair showed strong buyer rejection of lower prices near 1.174, indicated by bullish hammer candlesticks.
Resistance resides near 1.177, reinforced by a moving average, while the pair maintains a sequence of higher lows within a short-term range. The 38.2% Fibonacci retracement level at 1.174 has been a reliable floor, buttressed by positive RSI momentum above 52 without divergence.
Key resistance clusters lie between 1.178 and 1.183, correlating to previous swing highs. The outlook remains cautiously bullish as long as support levels hold firm.
Trade idea: Entry near 1.177 targeting 1.183, with protective stops placed below 1.174, would align with current technical momentum.
Market Outlook and Risks
Investor focus is shifting toward upcoming US inflation data, which will significantly influence expectations for the Federal Reserve’s monetary policy trajectory. Meanwhile, diverging stances from the European Central Bank and the Bank of England add additional layers of complexity to currency valuations.
Although the ceasefire has temporarily alleviated upward pressure on the US Dollar, analysts caution that the deal remains fragile; any breakdown could swiftly revive risk aversion and a spike in dollar demand as a safe haven.
About the Author:
Arslan Ali holds an MBA in finance and an MPhil in behavioral finance. Drawing on his expertise in market sentiment and financial analysis, he provides detailed insights into market trends and investor psychology.
For more market news and forecasts, stay tuned to FXEmpire.