U.S. Dollar Index (DX) Futures Technical Analysis – Easing on Position-Squaring Ahead of Friday’s NFP Report

The U.S. Dollar is edging lower against a basket of major currencies on Thursday as some traders book profits and square positions ahead of Friday’s major U.S. Non-Farm Payrolls report.

The greenback is also being pressured by a firm British Pound, which rose after hitting a more than two-year low the day before on expectations of the resignation of U.K. Prime Minister Boris Johnson after more than 50 members of parliament resigned from his government within 48 hours.

At 10:59 GMT, September U.S. Dollar Index futures are trading 106.610, down $0.288 or -0.27%. On Wednesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $28.59, up $0.14 or +0.47%.

The dollar also eased against the Euro after reaching a 20-year high against the single-currency on Wednesday. The move is likely being fueled by position-squaring as investors grappled with the risks of a recession and a potential pause in interest rate hikes.

The safe-haven Swiss Franc and Japanese Yen also rose against the dollar. According to reports, higher inflation readings may force the Swiss National Bank to soon tighten its policy. Last month it hiked its policy rate for the first time in 15 years.

Despite the early weakness, the selling pressure could ease because of rising U.S. Treasury yields. That could be determined by trader reaction to today’s Challenger Job Cuts, Weekly Unemployment Claims and the Trade Balance report.

Short-Term Outlook

Trader reaction to 106.898 is likely to set the tone on Thursday.

Bearish Scenario

A sustained move under 106.898 will indicate the presence of sellers. Taking out yesterday’s low at 106.135 will indicate the selling pressure is getting stronger. This will also make 107.070 a new minor top.

If the selling pressure is able to gain some momentum then look for a potential pullback into the short-term retracement zone at 105.135 to 104.680.

Bullish Scenario

A sustained move over 106.898 will signal the return of buyers. The first target is yesterday’s high at 107.070. Overcoming this level could trigger an acceleration to the upside with the long-term Fibonacci level at 107.780 the next major target.