U.S. Dollar Index (DX) Futures Technical Analysis – Steep Rise Makes It Vulnerable to Profit-Taking

The U.S. Dollar is continuing to climb against a basket of major currencies early Friday amid increasing bets the Federal Reserve will hike interest rates sooner than expected after consumer price data (CPI) showed the fastest inflation growth in 30 years.

At 05:42 GMT, December U.S. Dollar Index futures are trading 92.235, up 0.060 or +0.06%.

The CPI posted its biggest monthly gain in four months to lift the annual increase in inflation to 6.2%, the strongest year-on-year advance since November 1990.

In other news, according to the CME’s FedWatch tool, traders are currently pricing in two rate increases in 2022 and about a 44% probability of a third hike. The increasing probability of rate hikes is helping to drive up demand for the U.S. Dollar.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through the intraday high at 95.270 will reaffirm the uptrend. A move through 93.865 will change the trend to down although the steep rise in prices makes the index vulnerable to a closing price reversal top.

The nearest support is the former top at 94.740. This is followed by a minor retracement zone at 94.570 to 94.400. This zone will move up as the market moves higher.

Daily Swing Chart Technical Forecast

The direction of the December U.S. Dollar Index on Friday will be determined by trader reaction to 95.175.

Bullish Scenario

A sustained move over 95.175 will indicate the presence of buyers. Taking out the intraday high at 95.270 will indicate the buying is getting stronger.

We could continue to see increased upside momentum since there is no resistance until the long-term 50% level at 96.500.

Bearish Scenario

A sustained move under 95.175 will signal the presence of sellers. If this move creates enough downside momentum then look for a possible pullback into 94.740. Buyers could come in on the first test of this level. If it fails then look for the selling to possibly extend into 94.570 – 94.400. This value zone could prove to be attractive to new buyers.