U.S. Dollar Index (DX) Futures Technical Analysis – Drilled Lower by Weaker-Than-Expected PMI Data

After a promising start to the trading session on the back of safe-haven demand, the U.S. Dollar plunged against a basket of currencies on Friday on U.S. economic worries. Early in the session, the greenback was supported by safe-haven demand in reaction to an escalation of U.S.-China tensions.

Sellers returned to stop the intraday rally and drive the U.S. Dollar Index to a more than two-year low after U.S. manufacturing and services data came in weaker than expected, suggesting a longer-than expected recession.

At 16:41 GMT, September U.S. Dollar Index futures are trading 94.380, down 0.270 or -0.28%.

U.S. business activity increased to a six-month high in July but companies reported a drop in new orders as a resurgence in new COVID-19 cases across the country weighed on demand.

Data from IHS Markit said on Friday its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, rose to a reading of 50.0 this month from 47.9 in June. The increase ended five straight monthly contractions.

Factory activity rebounded this month, with the flash manufacturing PMI increasing to a six-month high of 51.3 from a reading of 49.8 in June. Economists had forecast the index for the sector, which accounts for 11% of the economy, advancing to 51.5 in July.

Its services sector flash PMI increased to 49.6 from a reading of 47.9 in June

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was confirmed earlier today.

The main trend will change to up on a trade through 97.810. This is highly unlikely so the best sign of a short-term bottom is likely to be a closing price reversal.

The minor trend is also down. It’ll change to up on a trade through 96.380. That will shift momentum to the downside. Needless to say, that top is also in the distance.

Short-Term Outlook

On the downside, the next two support levels come in at 94.33 and 94.13. A successful test of support isn’t likely to change the direction of the market however. It’s going to take a major news event that triggers a dramatic reversal to the upside. In other words, the bears are in control so something has to happen that’ll spook the short-sellers into covering aggressively.

The trigger point for an acceleration to the downside is 94.13. The daily chart indicates there is plenty of room until at least 93.60.

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