U.S. Dollar Index (DX) Futures Technical Analysis –Stronger Euro Weighs Ahead of Fed Meeting Minutes

The U.S. Dollar is down across the board versus a basket of major currencies on Wednesday as a raft of data from Europe suggested inflation may finally have peaked, sending the Euro higher against its U.S. counterpart.

The dollar was already easing from investors who have grown more optimistic over the prospect that China’s relaxation of tough COVID restrictions will breathe life into the world’s second largest economy. Such a move would reduce the appeal of the dollar as a safe-haven asset.

At 10:26 GMT, March U.S. Dollar Index futures are trading 103.775, down 0.537 or -0.51%. On Tuesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $28.12, up $0.31 or +1.10%.

Data on Wednesday showed French consumer price pressures cooled by a lot more than expected in December, while the previous day, German data also showed inflation fell significantly more than forecast. This came on the heels of Spanish inflation data last week that painted a similar picture, Reuters reported.

Looking Ahead…

Traders will get the opportunity to react to the US ISM Manufacturing PMI and JOLTS Job Openings reports at 15:00 GMT. Both could trigger volatile reactions, but the major event is the Fed minutes, due to be released at 19:00 GMT.

This could move the markets because the minutes could offer clues to investors about how concerned the Fed is about persistent inflation and its thoughts on the labor market. However, gains or losses could be limited because of Friday’s U.S. Non-Farm Payrolls report and next week’s Consumer Price Index data.

Generally speaking, dovish Fed minutes should weaken the U.S. Dollar, while a hawkish tone could lead to higher prices.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. It turned up on Tuesday when buyers took out the previous main top at 104.560. A trade through 103.145 will change the main trend to down.

The long-term range is 97.00 to 114.445. The market is currently testing the lower end of its retracement zone at 103.664.

The nearest resistance is a 50% level at 104.160. This was tested earlier in the session.

Daily Swing Chart Technical Forecast

Trader reaction to the long-term Fibonacci level at 103.664 is likely to determine the direction of the March U.S. Dollar futures contract on Wednesday.

Bullish Scenario

A sustained move over 103.664 will indicate the presence of buyers. If this creates enough upside momentum then look for a retest of 104.160. Overtaking this level could create the upside momentum needed to challenge 104.650 – 104.825.

Bearish Scenario

A sustained move under 103.664 will signal the presence of sellers. This could trigger an acceleration into the main bottom at 103.145. If it fails then look for the selling to possibly extend into 102.875 – 102.702.