U.S. Dollar Index (DX) Futures Technical Analysis – Jump in Risk Appetite, Intervention Fears Weigh

The U.S. Dollar is trading flat against a basket of major currencies on Tuesday with gains being capped by profit-taking and renewed demand for higher-risk assets.

The greenback is losing ground for a second session against the British Pound as a dramatic U-turn over the U.K.’s controversial tax-slashing “mini-budget” buoyed the Sterling. The Euro also benefitted from the news out of the U.K. as well as calls for more aggressive rate hikes from the European Central Bank.

At 04:00 GMT, December U.S. Dollar Index futures are trading 111.910, up 0.002 or up 0.00%. On Monday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $30.16, down $0.30 or -0.98%.

Safe-Haven Liquidation Pressure, Intervention Fears Rise

The U.S. Dollar was also pressured by a little safe-haven liquidation after a strong rally in U.S. equities. Wall Street jumped to robust gains on Monday as solid earnings fueled risk appetite. All three major U.S. stock indexes rallied to end the session 1.9% to 3.4% higher.

The weakness in the U.S. Dollar Index was also fueled by profit-taking after traders priced in a nearly 100% chance of a 75-basis-point rate hike by the Fed at its November 1-2 monetary policy meeting. This move is typical after this event. Furthermore, I wouldn’t be surprised if the index moves sideways-to-lower until the Fed makes its next interest rate hike and announces new terminal rate targets.

The dollar index could take further heat if Japanese authorities decide to intervene in the Forex market to prop up the Yen. The selling pressure could be intense if other central banks join in the intervention.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum is trending lower. A trade through 113.850 and 114.745 will reaffirm the uptrend. A move through 109.965 will change the main trend to down.

The minor range is 109.965 to 113.850. The market is currently testing its retracement zone at 111.921 to 111.471.

The short-term range is 107.450 to 114.745. Its 50% level at 111.098 is the key support level.

Daily Swing Chart Technical Forecast

Trader reaction to the minor 50% level at 111.921 will determine the direction of the December U.S. Dollar Index on Tuesday.

Bullish Scenario

A sustained move over 111.921 will indicate the presence of buyers. The first upside target is another pivot at 112.818. This is followed by the main top at 113.850.

Bearish Scenario

A sustained move under 111.921 will signal the presence of sellers. The next two downside targets are a minor Fibonacci level at 111.471 and a short-term 50% level at 111.098.

The short-term 50% level at 111.098 is a potential trigger point for an acceleration into the main bottom at 109.965.

Side Notes

Although the headlines have been focusing on a possible intervention from our friends in Tokyo, the Forex markets and especially the U.S. Dollar are at risk to a possible concerted intervention from many central banks. A move of this magnitude would drive the Dollar Index sharply lower and spike individual currency markets higher.