U.S. Dollar Index (DX) Futures Technical Analysis – Could Extend Short-Covering Rally into 92.605 – 92.855

The U.S. Dollar is trading higher against a basket of major currencies early Wednesday after bouncing off a two-year low the previous session in reaction to better-than-expected U.S. economic data.

Data published on Tuesday showed U.S. manufacturing activity accelerated to a nearly two-year high in August amid a surge in new orders, with the reading from the Institute for Supply Management highest level since November 2018. The U.S. data followed similarly upbeat Chinese and European manufacturing indicators.

At 06:24 GMT, September U.S. Dollar Index futures are trading 93.380, up 0.043 or +0.05%.

A steep plunge in the Euro also contributed to the strength in the U.S. Dollar Index. This came as no surprise since the Euro represents about 57% of the index. The single-currency likely retreated from its highest level since 2018 on profit-taking since economic data from Europe was also on the strong side.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum shifted to the upside with the formation of a closing price reversal bottom on Tuesday and its subsequent confirmation earlier today.

A trade through 91.725 will negate the closing price reversal bottom and signal a resumption of the downtrend. The main trend will change to up on a move through the last swing top at 93.480.

The major support is the long-term Fibonacci level at 91.760. This level essentially stopped the selling on Tuesday.

The minor range is 93.480 to 91.725. Its 50% level at 92.605 is the first upside target.

The short-term range is 93.980 to 91.725. Its 50% level at 92.855 is the second upside target.

Daily Swing Chart Technical Forecast

The confirmation of Tuesday’s closing price reversal bottom indicates that short-term momentum has shifted to the upside. This can lead to a 2 to 3 day short-covering rally with potential upside targets coming in at 92.605 to 92.855. Since the main trend is down, sellers are likely to come in on the first test of these levels.

If buyers can overcome 92.855 then we’ll have a different story to tell.

Before we can even think about a change in trend, the index is going to have to build a short-term support base between 92.605 and 91.725. Otherwise, we’re just looking at short-covering.

For a look at all of today’s economic events, check out our economic calendar.