US Dollar Index (DX) Futures Technical Analysis – May 4, 2016 Forecast

Sharp sell-offs by all major currencies helped drive the June U.S. Dollar Index futures contract higher on Tuesday. The rally started early after the Reserve Bank of Australia cut its benchmark interest rate. This drove the AUD/USD sharply lower. The NZD/USD fell in sympathy with the Aussie as the move by the RBA put pressure on the Reserve Bank of New Zealand to eventually cut its benchmark rate.

U.S. equity markets tumbled, initially supporting the Japanese Yen and Euro, however, these moves didn’t last as both currencies eventually succumbed to profit-taking, leading to a closing price reversal top by the EUR/USD and a closing price reversal bottom by the USD/JPY.

The USD/CAD also posted a closing price reversal bottom. A steep sell-off in crude oil encouraged long Canadian Dollar investors to book profits after a nearly five-month rally. The GBP/USD also posted a wicked closing price reversal top after a new poll showed more Brits were in favor of an exit from the European Union.

Technically, the main trend is down according to the daily swing chart, but the closing price reversal bottom indicates a shift in momentum to up. This could lead to a 2 to 3 day rally or a move into the nearest retracement zone. This chart pattern was confirmed earlier today.

The main range is 95.18 to 91.88. Its retracement zone at 93.53 to 93.92 is the primary upside target. Since the main trend is down, sellers may re-emerge on a test of this retracement zone.

Based on yesterday’s close at 92.93 and the earlier price action, the direction of the market today is likely to be determined by trader reaction to 93.03.

A sustained move over 93.03 will indicate the presence of buyers. The first upside objective is the steep downtrending angle at 93.18. This price is a potential trigger point for an acceleration into the 50% level at 93.53.

The 50% level at 93.53 is also the trigger point for a breakout into the Fibonacci level at 93.92. This is followed by a downtrending angle at 94.18.

The inability to overcome 93.18 will indicate that sellers are coming in to defend the trend. Crossing back under 93.03 will indicate the selling is getting stronger and that the short-covering is over.

The next move will be a correction of the first leg up. Aggressive counter-trend buyers may come in to try to form a potentially bullish secondary higher bottom. Potential support targets are 92.88, 93.38 92.13 and 92.01.

I know there are a lot of targets, but that’s all I can say because I don’t know where the rally from 91.88 is going to stop. Once this first rally is over then look for a pullback of at least 50% of the rally and this will be your new downside target.

Look for an upside bias as long as we remain over 93.03. Watch for an extension of the rally on a breakout over 93.18 with better-than-average volume. The market could turn bearish on an intraday basis if it falls back under 93.03.