"DXY has traded in a narrow range since mid-May, caught between widening rate differentials and sliding crude oil prices. Hopes of an Iran peace deal have no doubt played a role in declining energy costs but we remain cautious on oil prices even if negotiators secure a near-term deal to resume passage through the Strait. The relative stability in crude oil prices over the past few months is at least partly a function of subdued Chinese import demand, in our view. Any full or partial reopening of the Strait would be met with a surge in demand for strategic oil barrels, a process that we see extending for about 18-24 months," BofA notes.
"Next week's non-farm payrolls data and Fed beige book release are potential catalysts for DXY to break out of its recent range and we continue to like EUR/USD put spreads. ADP private payrolls, jobless claims and BofA's employment report for April 2026 suggest labor demand remains robust. Despite a slight miss on inflation and spending data this week, consumer spending also remains robust. Notwithstanding a modest headwind from month-end rebalancing flows, we also see a seasonal tailwind for the dollar (vs. CNY) as we enter dividend payment season for Hong Kong-listed Chinese companies," BofA adds.
