U.S. Dollar Index (DX) Futures Technical Analysis – Reaction to 93.650 Sets the Tone

The U.S. Dollar hit a new two-year low against a basket of currencies on Wednesday as the United States struggled to contain a spike in coronavirus cases, dashing hopes for a quick economic recovery.

Later today at 18:00 GMT, the focus for investors will shift from the spread of COVID-19 cases to monetary policy with the release of the U.S. Federal Reserve’s policy review. Central bank policymakers are expected to stick with their dovish stance, but dollar bears are betting they could hint of other ways to loosen policy further down the road including an increase of purchases of longer-dated debt, the implementation of yield caps or higher inflation targets.

At 09:56 GMT, September U.S. Dollar Index futures are trading 93.465, down 0.182 or -0.19%.

Goldman Sachs said on Tuesday that a potential Fed shift “towards an inflationary bias” along with record high debt levels by the United States government are raising “real concerns around the longevity of the U.S. Dollar as a reserve currency.”

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed earlier today when sellers took out 93.420.

The main trend will change to up on a trade through 97.810. This is highly unlikely, but due to the prolonged move down in terms of price and time, the market is currently inside the window of time to post a potentially bullish closing price reversal bottom.

The minor trend is also down. A trade through 96.380 will change the minor trend to up. This will also shift momentum to the upside.

The minor range is 96.380 to 93.420. If there is a reversal to the upside then its retracement zone at 94.865 to 95.220 will become the primary upside target.

Daily Swing Chart Technical Forecast

Based on the early price action and the current price at 93.465, the direction of the September U.S. Dollar Index on Wednesday is likely to be determined by trader reaction to 93.650.

Bearish Scenario

A sustained move under 93.650 will indicate the presence of sellers. If this continues to generate enough downside momentum then look for an eventual test of a pair of main bottoms at 92.820 and 92.580.

Bullish Scenario

A sustained move over 95.650 will signal the presence of buyers. This will also put the index in a position to post a potentially bullish closing price reversal bottom. This chart pattern will not change the main trend to up, but it could trigger a 2-3 day counter-trend rally. The best scenario would yield a minimum rally back to the minor 50% level at 94.865.