Dollar Index Breakout Over 96.475 Puts 97.120 on Radar

The U.S. Dollar is trading at its highest level since January 4 late Wednesday after the Federal Reserve signaled that it is likely to raise U.S. interest rates in March as expected and later launch a significant reduction in its asset holdings.

The combined moves will complete a pivot away from the loose U.S. monetary policy that has defined the pandemic era and toward a more urgent fight against inflation, CNBC wrote.

At 20:37 GMT, March U.S. Dollar Index futures are trading 96.440, up 0.512 or +0.53%. The Invesco DB US Dollar Index Bullish Fund is trading $25.85, up $0.15 or +0.58%.

The Fed’s statement at the end of its two-day policy meeting left questions about the timing of rate hikes and reducing the U.S. central bank’s almost $9 trillion balance sheet, but markets reacted calmly to the statement.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, however, momentum has been trending higher since the formation of the closing price reversal bottom on January 14.

A trade through 96.475 will change the main trend to up. A move through 94.610 will negate the closing price reversal bottom and signal a resumption of the downtrend.

The minor trend is also up. This confirms the upside momentum. A trade through 95.405 will change the minor trend to down.

The short-term range is 96.895 to 94.610. The index is currently trading on the strong side of its retracement zone at 96.020 to 95.755, making it new support.

The main range is 93.200 to 96.895. Its retracement zone at 95.050 to 94.610 is the major support controlling the near-term direction of the index.

Daily Swing Chart Technical Forecast

The direction of the March U.S. Dollar Index into the close on Wednesday is likely to be determined by trader reaction to 96.020.

Bullish Scenario

A sustained move over 96.020 will indicate the presence of buyers. If this move creates enough upside momentum then look for a surge into 96.475.

Taking out 96.475 will change the main trend to up. This level is also the trigger point for an acceleration to the upside with the next major targets 96.895, followed by 97.120.

Bearish Scenario

A sustained move under 96.020 will signal the presence of sellers. Taking out 95.930 will turn the market lower for the session and put it in a position to form a potentially bearish closing price reversal top.

Taking out the short-term 50% level at 95.755 could trigger an acceleration to the downside with 95.050 to 94.610 the next major target area.