U.S. Dollar Index (DX) Futures Technical Analysis – Strong Euro, Yen Dictating Direction

The U.S. Dollar plunged against a basket of major currencies on Monday as a slump in oil prices combined with coronavirus fears drove U.S. yields to unimaginable lows. Most of the weakness in the index was fueled by sharp increases in the Euro and Japanese Yen.

Oil prices collapsed 30% after Saudi Arabia shocked the markets with a pledge to slash prices and boost production following the collapse of an OPEC supply agreement.

At 06:54 GMT, March U.S. Dollar Index futures are trading 95.235, down 0.699 or -0.73%.

During the trading session, the Euro rose more than 1.4% to an almost two-year peak at 1.1452. Meanwhile, the Japanese Yen jumped more than 3% to a day high of 101.69 per dollar, its highest in three years and the sharpest daily jump since mid-2016. Additionally, the Yen is posting its largest three-day gain since the depths of the 2008 financial crisis. It is up 9.4% in a dozen trading days.

Dollar traders should keep an eye on the Japanese Yen because the Bank of Japan may step in to stop its excessive strength. An intervention would drive the Yen lower and the dollar index well off its lows of the session.

Daily Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed earlier in the session when sellers took out Friday’s low at 95.685. The market is in no position to change the main trend to up, but it could be setting up for a closing price reversal bottom.

Earlier today, the March U.S. Dollar Index stopped at 94.665, the same low it reached on June 24, 2019.

Daily Technical Forecast

Based on the early price action and the current price at 95.235, the direction of the March U.S. Dollar Index the rest of the session on Monday is likely to be determined by trader reaction to Friday’s close at 95.934.

Bearish Scenario

A sustained move under 95.934 will indicate the presence of sellers. The first downside target is today’s intraday low at 94.665. Taking out this low will indicate the selling is getting stronger. This could lead to a further break into the March 20, 2019 main bottom at 93.705.

Bullish Scenario

A sustained move over 95.934 will signal the return of buyers. If this move is able to generate enough upside momentum then look for the rally to possibly extend into the downtrending Gann angle at 96.815. This angle has been guiding the index lower since the 99.815 top on February 20. Overtaking it could trigger an acceleration to the upside.

A close over 95.934 will produce a closing price reversal bottom. If confirmed, this could lead to a 2 to 3 day counter-trend rally.