U.S. Dollar Index (DX) Futures Technical Analysis – Trade Through 97.700 Changes the Main Trend to Up

The U.S. Dollar is trading nearly flat against a basket of major currencies early Friday as investors continue to assess risk sentiment. Despite two solid days of gains, the index is trading lower for the week, but still in a position to change the main trend to up.

The primary driver of the rapid turnaround in the Dollar Index since Wednesday has been a possible shift in risk sentiment. The catalysts behind the volatile price action are concerns that the increasing number of coronavirus cases around the world and especially the United States could slow down the pace of the economic recovery.

At 07:48 GMT, September U.S. Dollar Index futures are trading 97.425, up 0.037 or +0.04%.

As far as the components of the index are concerned, the U.S. Dollar is losing ground to the Euro, Swiss Franc, Canadian Dollar and the Japanese Yen, while posting a slight gain versus the British Pound.

Liquidity is one of the reasons why investors are buying the U.S. Dollar. Investors have been betting heavily on the stock market amid expectations of a recovery in the global economy, so any sharp breaks in equities will raise liquidity issues. We’ve seen since March that during times of stock market uncertainty, investors have been treating the dollar as a popular safe-haven asset.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 97.700 will change the main trend to up, while a move through 95.570 will signal a resumption of the downtrend.

The minor trend is also down. A trade through the new minor bottom at 96.320 will indicate renewed selling pressure after a two-day counter-trend rally.

The minor range is 95.570 to 97.700. Its 50% level at 96.635 is support. This stopped the selling earlier in the week.

The short-term range is 99.885 to 95.570. Its retracement zone at 97.730 to 98.240 is the primary upside target. This zone is also controlling the near-term direction of the U.S. Dollar Index.

Daily Swing Chart Technical Forecast

There are two levels in focus on Friday. The first is last week’s close at 97.580. A close over this level will form a weekly closing price reversal bottom. If confirmed, this could trigger the start of a 2 to 3 week rally.

The second important level to watch is 97.700. Taking out this level will change the main trend to up on the daily chart.

Traders have to be careful buying strength on a breakout because of the potential resistance zone at 97.730 to 98.240. The market may have to grind through this zone before breaking out above 98.240. This could be the trigger point for an acceleration to the upside with the next major target coming in at 99.760.

If sellers continue to defend the downtrend at 97.700 then prices could retrace back to the minor 50% level or pivot at 96.635.

Side Notes

The price action in the September U.S. Dollar Index is being driven by risk sentiment and liquidity needs. Another plunge in global equity markets could send the index soaring, first through 97.700 then 98.240.

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