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U.S. Dollar Index (DX) Futures Technical Analysis – Downside Bias Due to Smaller Fed Rate Hike Expectations

By:
James Hyerczyk
Published: Sep 13, 2022, 07:49 UTC

The outlook for the Dollar could turn bearish with investors already betting on smaller Fed rate hikes in November and bigger ECB rate increases.

US Dollar Index

In this article:

The U.S. Dollar is edging lower against a basket of major currencies on Tuesday, shortly before the release of the U.S. Consumer Price Inflation (CPI) report that could have a major influence on the size of the next few Federal Reserve interest rate hikes.

At 07:08 GMT, September U.S. Dollar Index futures are trading 108.020, down 0.296 or -0.27%. On Monday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $29.03, down $0.16 or -0.55%.

Traders Anticipating Smaller Rate Hike in November

Going into the report, due to be released at 12:30 GMT, traders are pricing in a 90% chance of a 75 basis point rate hike by the Fed on September 21. At the same time, the odds of a 50 basis point rate hike on November 2 are at 76.2% and a 75 basis point hike at 13.7%.

With the market expecting the report to show that U.S. consumer inflation has peaked, the numbers are showing that traders don’t expect the Fed to waver at next week’s meeting and are likely to supersize their rate hike.

However, the numbers also show that next week’s 75 basis point rate hike may be the last of the “big ones”. This assessment is being confirmed by the strong odds of a 50 basis point rate hike in November.

Four straight days of losses by the dollar index are also reflecting this assessment. The top was put in on September 7 as next week’s 75 basis point rate hike was being fully-priced into the market. The subsequent sell-off reflects investors taking profits in anticipation of smaller rate hikes starting in November.

Furthermore, while investors are betting on smaller rate hikes by the Fed, they are also wagering on bigger rate hikes by the European Central Bank (ECB). The combination could create a near-term bearish situation for the U.S. Dollar.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending lower since September 7.

A trade through 110.785 will negate the closing price reversal top and signal a resumption of the uptrend, while a move through 107.480 will change the main trend to down.

The minor trend is down. This confirms the shift in momentum.

On the downside, the major support is the long-term Fibonacci level at 107.780. This is followed by a short-term retracement zone at 107.650 – 106.910.

On the upside, the nearest resistance is a minor pivot at 109.133.

Daily Swing Chart Technical Forecast

Trader reaction to the long-term Fibonacci level at 107.780 is likely to determine the direction of the September U.S. Dollar Index on Tuesday.

Bearish Scenario

A sustained move under 107.780 will indicate the presence of sellers. This could trigger a steep break into 106.910. If this fails then look for the selling to extend into 105.978.

Bullish Scenario

A sustained move over 107.780 will signal the presence of buyers. This could trigger an acceleration into the pivot at 109.330.

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

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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