U.S. Dollar Index (DX) Futures Technical Analysis – Bottoming Action Taking Place

The U.S. Dollar rose against a basket of major currencies on Wednesday after two straight days of losses, as money markets tempered hopes of a rapid global economic recovery from the coronavirus pandemic. Selling pressure hit several major currencies, including Sterling and the Euro, before easing, leaving both broadly unchanged by early afternoon.

At 20:24 GMT, September U.S. Dollar Index futures are trading 97.140, up 0.532 or +0.55%.

Analysts said caution was warranted given the risk of a second wave of COVID-19 infections, despite improved economic data, including the strongest rebound on record in German business confidence, according to data on Wednesday.

“The risk of a second wave worldwide has not been banished yet and can quickly push the FX market back into the old pattern of ‘risk aversion is on the up, let’s buy safe havens; i.e., the dollar’ – even under the assumption that the lockdowns imposed in that case could probably be much less severe than the first time round,” Commerzbank analysts said in a note.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 95.570 will signal a resumption of the downtrend. The main trend will change to up on a move through the last swing top at 97.700.

The minor range is 95.570 to 97.700. Its 50% level or pivot at 96.635 is support. This level is important because it could be used to form a potentially bullish secondary higher bottom.

The short-term range is 99.885 to 95.570. Its retracement zone at 97.730 to 98.240 is the next upside target. Trader reaction to this zone should determine the next major move by the index.

Short-Term Outlook

Based on the price action on Tuesday and Wednesday, the direction of the September U.S. Dollar Index the rest of the week is likely to be determined by trader reaction to the minor pivot at 96.635.

A sustained move over 96.635 will indicate the presence of aggressive countertrend buyers or short-covering. If this creates enough upside momentum then look for the rally to possibly extend into the resistance cluster at 97.700 to 97.729.

Trader reaction to this price cluster will tell us if the buying or selling is getting stronger. Overtaking 98.240 is the potential trigger point for an acceleration into the next major price cluster at 99.760 to 99.885.