U.S. Dollar Index (DX) Futures Technical Analysis – Gains Capped by Position-Squaring Ahead of Fed

The U.S. Dollar is edging lower against a basket of major currencies at the mid-session on Tuesday as investors lightened up on the long side ahead of tomorrow’s Federal Reserve interest rate decision.

Traders are looking for the Fed to hike its benchmark rate by 25 basis points on Wednesday. Fed funds futures traders are pricing for the Fed’s benchmark rate to peak at 4.93% in June, up from 4.33% now.

But investors are also bearish on the U.S. economy and see the Fed as having to cut rates back to 4.48% by December. This is despite Fed officials stressing they will need to keep rates in restrictive territory for a period of time in order to bring down inflation.

At 17:39 GMT, March U.S. Dollar Index futures are trading 102.010, down 0.076 or -0.07%. The Invesco DB US Dollar Index Bullish Fund ETF (UUP) is at $27.53, down $0.04 or -0.14%.

In addition to the position-squaring, the greenback was pressured by data that showed U.S. labor costs increased less than expected in the fourth quarter. Despite the fact that the number came in below expectations it is still not likely to sway the Fed from implementing additional rate hikes.

Daily U.S. Dollar Index Technical Analysis

The main trend is down according to the daily swing chart. A trade through 101.265 will signal a resumption of the downtrend. A move through 102.655 will change the main trend to up.

The minor range is 102.655 to 101.265. The index is currently straddling its pivot at 101.960.

On the upside, the major resistance is a long-term Fibonacci level at 103.664. On the downside, the major support is the May 24 main bottom at 101.265.

Daily U.S. Dollar Index Technical Forecast

Trader reaction to the minor pivot at 101.960 is likely to determine the direction of the March U.S. Dollar Index into the close on Tuesday.

Bullish Scenario

A sustained move over 101.960 will indicate the presence of buyers. If this creates enough late session momentum then look for a surge into the intraday high at 102.450, followed by the main top at 102.655.

Bearish Scenario

A sustained move under 101.960 will signal the presence of sellers. This would put the index in a position to challenge the main bottoms at 101.265 and 101.000.