Markets Jolt on Middle East Escalation as Dollar Surges, Risk Assets Retreat

 Key Takeaways:

*The U.S. dollar rallied at the start of the week as the market perceived heightened geopolitical risk. 

*Wall Street may face headwinds from the Middle East conflict and edge lower. 

Market Summary:

Financial markets opened the week on a volatile note, driven by intensifying geopolitical tensions in the Middle East. The U.S. dollar rallied to weekly highs, buoyed by its safe-haven appeal, after reports confirmed that U.S. military strikes had targeted Iranian nuclear facilities over the weekend. The development sparked fears of potential Iranian retaliation, with heightened concerns that Tehran may seek to disrupt the Strait of Hormuz—a strategic maritime choke point responsible for roughly 20% of global oil flows.

The shift in sentiment triggered a broad risk-off move across global markets. Asian equities bore the initial brunt, with major indices in Tokyo and Hong Kong posting steep losses amid growing investor unease. The downbeat tone is expected to carry over into U.S. trading, where futures point to a weaker Wall Street open. With uncertainty dominating the macro backdrop, the dollar’s strength could extend, potentially testing the psychological 100.00 level on the Dollar Index, while equity markets face further downside risks.

Outlook: Risk-Off Bias to Persist Without De-Escalation

Until there is clear diplomatic progress or signs of de-escalation, markets are likely to remain in a defensive posture. A forceful Iranian response may intensify safe-haven flows into the dollar and U.S. Treasuries, while global equities and emerging market assets come under further pressure. Conversely, any cooling in rhetoric could trigger a relief rally, though positioning is expected to remain cautious.

With volatility elevated and geopolitical risks unresolved, investors are bracing for a turbulent trading week driven more by headlines than fundamentals.

Technical Analysis 

DXY, H4

The U.S. dollar, after enduring sustained downward pressure earlier this year, appears to have entered a decisive bullish phase. The dollar index (DXY), which had been trapped in a lower-high pattern since the start of 2025, has now reversed course, breaking out of its long-term downtrend resistance and establishing a higher-high, higher-low structure—a classic sign of bullish momentum. This shift suggests that the bearish trend may have exhausted itself, with buyers now firmly in control as the index trades within a newly formed uptrend channel.

A critical level to watch is the immediate resistance at 99.25. A confirmed break above this level could serve as a strong bullish signal, potentially opening the door for further upside toward the psychologically significant 100.00 mark and beyond. Technical indicators support this optimistic outlook: the Relative Strength Index (RSI), while not yet overbought, is hovering in mid-range territory with an upward bias, indicating growing bullish momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) has crossed above the zero line, reinforcing the bullish bias and suggesting that buying pressure is gaining strength.

Resistance level: 99.25, 100.56
Support level: 98.30, 97.31

Dow Jones, H1

The index remains confined within a well-defined downtrend channel, having retreated more than 2% from its recent peak at the 43,110 mark—reinforcing a bearish technical bias. Price action has now stabilized just above the critical support level at 41,900. A decisive break below this threshold could invalidate the prior bullish structure and confirm a deeper bearish reversal for the index.

However, momentum indicators remain inconclusive. The Relative Strength Index (RSI) is oscillating between overbought and oversold territories, offering little directional clarity. Meanwhile, the MACD is hovering near the zero line, further reinforcing a lack of conviction in short-term momentum.

Traders should closely monitor price action around the 41,900 support. A sustained hold above this level may invite a temporary rebound, while a breakdown could open the door for accelerated downside pressure. Given the mixed momentum signals, the index may continue to trade in a choppy, sentiment-driven fashion in the near term.

Resistance level: 42,430.00, 42,880.00
Support level: 41,900.00, 41, 310.00