U.S. Dollar Index (DX) Futures Technical Analysis – Lower as Traders Anticipate Fed Rate Hike Slowdown

The U.S. Dollar is trading at a three-week low against a basket of major currencies on Wednesday as fresh signs of economic weakness in the United States fueled speculation about a less-hawkish Federal Reserve.

At 10:10 GMT, December U.S. Dollar Index futures are trading 110.065, down 0.765 or -0.69%. On Tuesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $29.82, down $0.32 or -1.06%.

Euro, British Pound Weighing on Greenback

The Euro is sitting near a six-week high ahead and trading very close to parity with its U.S. counterpart ahead of Thursday’s key European Central Bank (ECB) policy meeting. At the meeting, policymakers are expected to raise their benchmark interest rate by 75-basis points.

Meanwhile in the U.K., Sterling hit its highest level since September 13 after new British Prime Minister Rishi Sunak pledged to lead the country out of an economic crisis.

Fed Watch:  Hawkish in November, Less-Hawkish in December

Traders and economists predict another 75 basis point increase on November 2, but the view is growing for a slowing to half a point in December. This expected “pivot” by the Fed is encouraging investors to trim their long U.S. Dollar positions against the major currencies.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed when sellers took out the swing bottom at 109.965. A trade through 113.835 and 113.850 will change the main trend to up.

The short-term range is 107.450 to 114.745. The index is trading on the weak side of its pivot at 111.098, making it resistance.

The nearest support is the long-term Fibonacci level at 107.780.

Daily Swing Chart Technical Forecast

Trader reaction to 110.237 is likely to determine the direction of the December US Dollar Index into the close on Wednesday.

Bearish Scenario

A sustained move under 110.237 will indicate the selling pressure is getting stronger. This opens up the possibility of a spike lower into a minor bottom at 109.075. If this level fails then look for the selling to possibly extend into the long-term support at 107.780.

Bullish Scenario

Overtaking and sustaining a move over 110.237 will signal the return of intraday buyers. If this move generates enough upside momentum then look for an intraday surge into the short-term 50% level at 111.098.

Trader reaction to a retest of 111.098 will tell us whether the index has entered the “Sell the Rally” mode.