• US Dollar Index tests intra-week highs at 99.40 after rallying 0.4% over the last three days.
• Fresh hostilities between the US and Iran and strong US data are boosting the USD this week.
• The pair is trading within an expanding wedge, which is often a bearish sign.

The safe-haven US Dollar (USD) is showing strength on Wednesday as tensions in the Middle East escalate, casting doubt on the fate of a stalled peace process. The US Dollar Index, which measures the Greenback against a basket of six rivals, is testing intra-week highs at the 99.30 area after rallying about 0.4% over the last three days. 

Investors remain wary of risk on Wednesday amid uncertainty in the Middle East. Reports of fresh hostilities between the US and Iran add pressure on an already fragile ceasefire and boost Oil prices. US authorities maintain that the truce is still holding, but Tehran announced on Monday the suspension of the peace talks due to violations of the ceasefire by the US and Israel.

Meanwhile, US data continue to show a resilient economy, providing additional support for the USD. JOLTS Job Openings rose to their highest level in nearly two years in April, and the ISM Manufacturing Purchasing Managers Index (PMI) indicated strong activity in May. These figures strengthen the case for a Federal Reserve rate hike later this year, if inflationary pressures remain high.

Technical Analysis: The Dollar trades within an expanding wedge

Dollar Index Spot trades at 99.35, with recent price action forming an expanding wedge. This figure normally acts as a top formation, anticipating a bearish outcome, although this time, fundamentals are supportive.

Momentum Indicators in the 4-hour chart show moderate bullish pressure. The Relative Strength Index (RSI) is hovering around 60, and the Moving Average Convergence Divergence (MACD) line holds within positive territory, both hinting at constructive momentum but not yet signaling a runaway move.

Bulls are attempting to breach Monday's high, in the area of 99.40 at the time of writing. If they succeed, the two-month high, near 99.55, will come into sight ahead of the wedge top, now around 99.70.

Downside attempts, on the contrary, are likely to be tested at Tuesday's low of 99.05. Further down, the confluence of the May 29 low and the wedge bottom, at the 98.75 area, is likely to provide significant support.

(The technical analysis of this story was written with the help of an AI tool.)