U.S. Dollar Index (DX) Futures Technical Analysis – Hawkish Powell Will Put 105.475 on Radar

The U.S. Dollar is trading higher against a basket of major currencies on Wednesday as investors await Fed Chairman Jerome Powell’s first day of testimony this week before the Senate Banking Committee. Investors will be looking for further clues about whether another 75 basis point rate hike is in the cards at the Fed’s July meeting. This would follow a similar rate hike from policymakers earlier in the month.

However, I believe the bigger headline will be Powell’s response to questions from Senators regarding whether he believes the Fed can raise rates and lower inflation without weakening the labor market or causing a recession.

At 07:43 GMT, September U.S. Dollar Index futures are trading 104.710, up 0.499 or +0.48%. On Tuesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $27.87, down 0.08 or -0.30%.

Powell Expected to Be Grilled…and It Could Get Political

When asking Powell about inflation, the Republicans on the committee could point to stimulus spending by the Biden Administration and a weak energy policy as the main reasons for high inflation. Democrats will counter that by saying the pandemic spending began with the Trump administration.

The most important line of questioning, in my opinion, will be regarding the odds of a recession. Expect Powell to get questions around the likelihood and severity of a recession.

If Powell comes across as hawkish then look for the dollar to surge. The U.S. Dollar is likely to weaken if Powell doesn’t sound confident in his responses regarding the possibility of recession.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum is trending lower.

A trade through 105.475 will signal a resumption of the uptrend. A move through 101.445 will change the main trend to down.

The minor trend is also up. A trade through 102.005 will change the minor trend to down. This will confirm the shift in momentum.

The minor range is 105.475 to 103.200. The index is currently straddling its pivot at 104.340.

The short-term range is 101.170 to 105.475. Its retracement zone at 103.320 to 102.815 is support. This zone stopped the selling at 103.200 on June 16.

The major support is a long-term 50% level at 101.125.

Daily Swing Chart Technical Forecast

Trader reaction to the minor pivot at 104.340 is likely to determine the direction of the September U.S. Dollar Index on Wednesday.

Bullish Scenario

A sustained move over 104.340 will indicate the presence of buyers. If this creates enough upside momentum then look for a possibly surge into the main top at 105.475.

Bearish Scenario

A sustained move under 104.340 will signal the presence of sellers. This could trigger a break into a support cluster at 103.320 – 103.200, followed by a short-term Fibonacci level at 102.815.