U.S. Dollar Index (DX) Futures Technical Analysis – Lower Close Could Trigger Start of Short-Term Correction

The U.S. Dollar is trading flat against a basket of major currencies late Monday after touching a 20-year high early in the session. The move was fueled by follow-through buying tied to Friday’s hawkish comments from Federal Reserve Chair Jerome Powell.

Traders are blaming a jump in the heavily-weighted Euro for today’s choppy trade. The single-currency was boosted by growing expectations for European Central Bank (ECB) rate hikes.

At 18:53 GMT, September U.S. Dollar Index futures are trading 108.755, up 0.004 or +0.00%. The Invesco DB US Dollar Index Bullish Fund ETF (UUP) is at $29.14, up $0.01 or +0.02%.

The dollar index extended gains from Friday, when Powell told central bankers at the Jackson Hole Symposium the Fed would raise rates as high as needed to restrict growth, and keep them there “for some time” to lower inflation running at more than three times the Fed’s 2% mandate.

The Euro clawed higher, helped by comments from a European official that pointed to a possible 75-basis-point hike at the Sept. 8 ECB meeting.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through the intraday high at 109.445 will signal a resumption of the uptrend. A move through 107.480 will change the main trend to down.

The minor range is 107.480 to 109.445. Its pivot at 108.465 is potential support.

The major support is the long-term Fibonacci level at 107.780. This is followed by a short-term retracement zone at 106.980 to 106.400.

Short-Term Outlook

Trader reaction to 108.750 will determine the direction of the September U.S. Dollar Index into the close on Monday.

Bullish Scenario

A sustained move over 108.750 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into the intraday high at 109.445. This is a potential trigger point for an acceleration to the upside.

Bearish Scenario

A sustained move under 108.750 will signal the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into the major Fibonacci level at 107.780. This is the last potential support before the main bottom at 107.480.

A trade through 107.480 will change the main trend to down with 106.980 to 106.400 the next potential target area.

Side Notes

A close under 108.750 will form a potentially bearish closing price reversal top. If confirmed, this could trigger the start of a 2 to 3 day correction.