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James Hyerczyk
U.S. Dollar Index

The U.S. Dollar closed higher against a basket of major currencies on Friday while posting its strongest weekly performance since April as concern over the economic effect of a second wave of coronavirus-related lockdowns weighed on investors’ risk appetite.

On Friday, December U.S. Dollar Index futures settled at 94.682, up 0.288 or +0.31%.

While the index rose 0.31%, its largest component, the Euro, fell 0.32% to 1.1631. Another component, the Japanese Yen, weakened 0.13% versus the greenback at 105.557 per dollar, while the British Pound finished nearly unchanged at 1.2743.

In other news, new orders for key U.S.-made capital goods increased more than expected in August and demand for the prior month was stronger than previously estimated. The data suggested a rebound in business spending on equipment was underway after a prolonged slump. Orders for durable goods rose 0.4% in August after jumping 11.7% a month earlier.

The U.S. Dollar Index rose because the upbeat report from the Commerce Department did not change views that the economy’s recovery from the COVID-19 recession was slowing as government money to help businesses and tens of millions of unemployed Americans runs out. Meanwhile, new coronavirus cases are rising in some parts of the country. That could crimp consumer spending, with retail sales already slowing.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. Sellers tried to slow down the rally on Thursday with a closing price reversal top, but that chart pattern was never confirmed and the move resumed on Friday. A trade through 94.795 will signal a resumption of the up move. A trade through 92.755 will change the main trend to down.

The main range is 97.785 to 91.750. Its retracement zone at 94.770 to 95.480 is the primary upside target. Trader reaction to this zone should determine the next major move in the dollar index. On Friday, the index traded 94.795, but backed off under the lower or 50% level into the close.

The new minor range is 92.755 to 94.795. Its 50% level at 93.775 is the first potential downside target.

The second minor range is 91.750 to 94.795. Its 50% level at 93.275 is another potential downside target and support price.


Short-Term Outlook

Buyers are likely to take a run at the 50% level at 94.770. They are going to try to fuel a surge into the 61.8% level at 95.480. This price is a potential trigger point for an acceleration to the upside. The daily chart indicates there is plenty of room to the upside with 97.785 the next likely target.

If buyers fail to materialize and counter-trend sellers can regain control then look for a possible pullback into 50% levels at 93.775 and 93.275. Since the main trend is up, these should be treated as buying opportunities. The idea is to continue to build on the series of higher tops and higher bottoms. All bets are off on a rally if 92.755 fails to hold as support.

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