U.S. Dollar Index (DX) Futures Technical Analysis – Rate Hike Expectations Have Skewed Risks to Downside

The U.S. Dollar is trading higher against a basket of currencies at the mid-session on Tuesday as the Federal Reserve kicks-off its two-day policy meeting where it was widely expected to announce the start of tapering of its massive stimulus program put in place at the start of the COVID-19 pandemic in March 2020.

At 16:47 GMT, December U.S. Dollar Index futures are trading 94.085, up 0.206 or +0.22%.

In potentially bullish news, amid heightened concerns about inflation, respondents to the CNBC Fed Survey believe the Federal Reserve will announce a decision to taper Wednesday and begin hiking interest rates considerably sooner than previously forecast.

Respondents also moved forward their forecast for the first rate hike to September 2022 from December in the last survey.

Additionally, Fed funds markets have a 58% probability of the first rate hike in June and a 73% chance of a second increase by December.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 94.410 will signal a resumption of the uptrend. A move through 93.265 will change the main trend to down.

The short-term range is 94.570 to 93.265. The index is currently straddling its 50% level at 94.020.

On the downside additional support comes in at 93.770 and 93.580.

Daily Swing Chart Technical Forecast

The direction of the December U.S. Dollar Index into the close on Tuesday is likely to be determined by trader reaction to 94.020.

Bullish Scenario

A sustained move over 94.020 will indicate the presence of buyers. The first upside target is a minor pivot at 94.110. Overtaking this level will indicate the buying is getting stronger with 94.410 the next likely target. This is a potential trigger point for an acceleration to the upside with the next target 94.570.

Bearish Scenario

A sustained move under 94.015 will signal the presence of sellers. If this move creates enough downside momentum then look for sellers to possibly extend the move into 93.770, followed closely by 93.580.