U.S. Dollar Index (DX) Technical Analysis – Strengthens Over 90.160, Weakens Under 90.060

The U.S. Dollar built on its gains from earlier in the week against the other major currencies on Friday, bringing it to its highest level since December 28 after dismal U.S. payrolls raised expectations for further stimulus measures to prop up an economy battered by the coronavirus and its related government lockdown measures.

On Friday, March U.S. Dollar Index futures settled at 90.068, up 0.277 or +0.31%.

The Labor Department said nonfarm payrolls decreased by 140,000 in December, the first decline in eight months, well below expectations that called for a still-weak increase of 71,000 jobs. The unemployment rate was 6.7%. Other economic data during the week leading up to Friday’s report indicated a stalling labor market.

Rising Treasury Yields Lead the Charge

The greenback has been climbing from a nearly three-year low since Wednesday as a rise in U.S. Treasury yields helped fuel the unwinding of bearish bets on the currency, with traders taking profits against the Euro in particular. A weaker Euro tends to give the Dollar Index a boost because it’s the highest weighted currency in the basket.

U.S. Treasurys fell on Friday when the yield on the benchmark 10-year Treasury note gained 5 basis points to 1.124%, its highest level since March 30, 2020 The yield on the 30-year Treasury bond also rose 4 basis points to 1.893%, a level not seen since March 2020. Yields move inversely to prices.

The rally in the U.S. Dollar Index also gained traction after Federal Reserve Vice Chairman Richard Clarida said he expects the central bank to maintain the pace of its asset purchases through the balance of 2021.

Daily Swing Chart Technical Analysis

The main tend is down according to the daily swing chart, but momentum has been trending higher since the confirmation of the closing price reversal bottom on January 6.

A trade through 89.165 will negate the closing price reversal bottom and signal a resumption of the downtrend. The main trend will change to up on a trade through 92.730.

The minor trend is up. It changed to up on January 7 when buyers took out the 89.965 minor top. This move helped confirm the shift in momentum.

On Friday, a pair of 50% levels at 90.060 and 90.160 proved to be solid resistance, suggesting this area could be controlling the short-term direction of the market.

The minor range is 89.165 to 90.230. Its 50% level at 89.700 is support.

The short-term range is 92.730 to 89.165. Its retracement zone at 90.950 to 91.370 is the primary upside target.

Short-Term Outlook

Friday’s price action suggests the direction of the March U.S. Dollar Index is likely to be determined by trader reaction to the pair of 50% levels at 90.060 and 90.160.

Bearish Scenario

A sustained move under 90.060 will indicate the presence of sellers. If this creates enough downside momentum then look for the selling to extend into the minor pivot at 89.700.

Bullish Scenario

A sustained move over 90.160 will signal the presence of buyers. Overtaking 90.230 will indicate the buying is getting stronger. This could trigger the start of an acceleration to the upside into the resistance cluster at 90.950.