U.S. Dollar Index (DX) Futures Technical Analysis – Downside Momentum Targets 91.750 Early Next Week

The U.S. Dollar finished lower against a basket of major currencies on Friday as investors fret about its status as the world’s dominant reserve currency, including expectations of rock-bottom interest rates and massive U.S. government spending for years to come.

An increasingly bearish picture is unfolding for the greenback, which posted its worst weekly performance since March on signs that Federal Reserve money printing rather than government spending may be deployed to bolster the economy in the aftermath of last week’s elections.

On Friday, December U.S. Dollar Index futures settled at 92.225, down 0.291 or -0.31%. The index finished 1.93% lower for the week.

The greenback is off about 10% from its highs of the year and stands near more than a two-year low. Its decline in 2020 has buoyed rallies in assets some investors see as dollar alternatives, such as gold and bitcoin, which are up 4% and 12% so far this month, respectively.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The trend turned down last week when sellers took out the last main bottom at 92.460. A trade through 94.330 will change the main trend to down.

The short-term range is 91.750 to 94.795. Its 50% level at 93.275 is resistance. Since the main trend is down, sellers are likely to come in on a test of this level.

Daily Swing Chart Technical Forecast

The downside momentum is very strong so why mess with it along with the downtrend. The fundamentals are also bearish so your choice is to continue to sell weakness and ride out the upswings, or wait for an upswing to short.

Last week’s comments by Fed Chairman Jerome Powell were bearish, meaning the Fed is dovish and likely to remain dovish. Furthermore, fresh fiscal stimulus combined with monetary stimulus is likely to keep a lid on any rallies.

The dollar doesn’t have a greenlight to keep falling over the long-run, however, amid signals from the European Central Bank that it may increase its economic support in December.

We’re looking for the December U.S. Dollar Index to continue its slide into at least the September 1 main bottom at 91.750 before we see some profit-taking emerge. After that level is breached then we could start to see an acceleration to the downside. The weekly chart indicates there is very little support until the 2018 main bottom at 84.320.

If we don’t get the hard selling we expect this week then be prepared to sell a counter-trend rally into at least 93.275.