ING Research discusses the USD outlook in light of the recent developments in the Middle East conflict.

"Failed US Iran talks in Islamabad over the weekend only gave the dollar very brief support. As yesterday went on, oil prices started falling again and the dollar followed. Markets seem to take the view that while the Strait of Hormuz blockade is a form of re escalation, it could eventually push Iran back to the negotiating table given the economic cost of lost oil exports. Trump’s comment that Iran had reached out to restart talks triggered another round of USD selling, with DXY currently around 0.3% off Friday’s close. Markets remain heavily tilted toward a sanguine interpretation of events," ING notes.

"That means plenty of good news is already in the price, which does increase the dollar’s rebound potential if tensions flare up again.

But it also means that it would probably now take a more meaningful re escalation to stop markets from fading any initial USD bounce, like we saw yesterday," ING adds.