Dollar Index Forming Bearish Closing Price Reversal Top

The U.S. Dollar is trading lower against a basket of major currencies after touching a multi-year high earlier in the session.

The dollar index is being dragged lower by a sharp rise in the Japanese Yen after the currency tested its lowest level since April 2002. Traders are also reacting to a dip in U.S. Treasury yields that may have been fueled by less-hawkish comments from a Fed official the previous day.

At 10:27 GMT, June U.S. Dollar Index futures are trading 100.385, down 0.579 or -0.57%. On Tuesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $27.00, up $0.06 or +0.20%.

Volatile Start to the Trading Session

Earlier in the session, the Bank of Japan (BOJ) boosted efforts to defend its yield target, making a fresh offer to buy an unlimited amount of the 10-year bonds for four consecutive session. This move drove the USD/JPY higher.

The Dollar/Yen rallied to near 130 per dollar on Wednesday – a level not seen for two decades – raising the risk of direct intervention, where the central bank would buy up large amounts of Yen in the open market with its foreign currency reserves. This risk may have encouraged long traders to take profits.

Today’s weakness is likely being fueled by a number of factors including a technically overbought situation, fear of an intervention or a dip in Treasury yields.

The dip in yields may have been triggered by comments from Fed official Bostic, who on Tuesday warned the Fed must be careful about tightening too fast or risk damage to the economic recovery.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 101.045 will signal a resumption of the uptrend.

A move through 97.730 will change the main trend to down. This is highly unlikely, but the early price action has put the USD/JPY in a position to form a potentially bearish closing price reversal top.

The minor trend is also up. A trade through 99.555 will change the minor trend to down. This will shift the momentum.

The minor range is 99.555 to 101.045. Its pivot at 100.300 is the first downside target. The second minor range is 97.730 to 101.045. Its 50% level at 99.388 is additional support.

Daily Swing Chart Technical Forecast

The early price action suggests the direction of the June US Dollar Index on Wednesday is likely to be determined by trader reaction to 100.964.

Bearish Scenario

A sustained move under 100.964 will indicate the presence of sellers. The first downside target is the 50% level at 100.300. We could see a technical bounce on the first test of this level, but if it fails then look for the start of a steep sell-off with the next target area 99.555 to 99.388.

The 50% level at 99.388 is a potential trigger point for an even steeper break with the long-term Fibonacci level at 98.200 the next major target.

Bullish Scenario

A sustained move over 100.964 will signal the presence of buyers. Overtaking this level could lead to a retest of the intraday high at 101.045. Taking out this level could trigger an acceleration to the upside.

Side Notes

A close under 100.964 will form a potentially bearish closing price reversal top. If confirmed, this could trigger the start of a minimum 2 to 3 day correction. This may not change the main trend to down, but it will shift momentum to the downside.