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James Hyerczyk

The U.S. Dollar is trading marginally higher against a basket of major currencies early Friday after posting a potentially bearish closing price reversal top the previous session. Although the greenback has stabilized below its recent two-month high after early session weakness, it is vulnerable to the downside as appetite for risk is being lifted by the hopes that U.S. fiscal stimulus talks would resume.

At 09:25 GMT, December U.S. Dollar Index futures are trading 94.425, up 0.031 or +0.03%.

The dollar is on track for its best week since early April, driven by risk aversion that made traders abandon their short positions as the outlook for the global economic recovery darkened with a second wave of COVID-19 cases in Europe.

Sentiment is being boosted by reports that Democrats in the U.S. House of Representatives are working on a $2.2 trillion coronavirus stimulus package that could be voted on next week. This may be helping to cap today’s gains.

Daily December U.S. Dollar Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, but yesterday’s closing price reversal top may be a sign that momentum is getting ready to shift to the downside.

A trade through 94.655 will negate the closing price reversal top and signal a resumption of the uptrend. A move through 94.225 will confirm the closing price reversal top. This could trigger the start of a 2 to 3 day correction into a pair of 50% retracement levels. A trade through 92.755 will change the main trend to down.

The main range is 97.785 to 91.750. Its retracement zone at 94.770 to 95.480 is the next potential upside target and possible resistance area. Counter-trend sellers could come in on a test of this area.

The retracement zone at 94.770 to 95.480 is very important to the structure of the longer-term chart pattern. Trader reaction to this zone will set the near-term tone.

The first minor range is 92.755 to 94.655. If the closing price reversal top is confirmed then look for a pullback into its 50% level at 93.705. The second potential downside target is a 50% level at 93.025. Since the main trend is up, look for buyers on a pullback into these retracement levels.


Daily Swing Chart Technical Forecast

Based on the early price action, the direction of the December U.S. Dollar on Friday is likely to be determined by trader reaction to 94.225.

Bullish Scenario

A sustained move over 94.225 will indicate the presence of buyers. They are likely defending against a confirmation of the closing price reversal top. Overtaking 94.655 will negate the chart pattern and could trigger a surge into 94.770 to 95.480.

Bearish Scenario

Taking out 94.225 will confirm the closing price reversal top. If this move creates enough downside momentum then we could see a 2 to 3 day break into the first pivot at 93.705, followed by the second pivot at 93.200. Look for buyers on the pullback into these levels.

For a look at all of today’s economic events, check out our economic calendar.

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