U.S. Dollar Index (DX) Futures Technical Analysis – Trader Reaction to 105.665 Pivot Sets the Tone

The U.S. Dollar is edging higher against a basket of major currencies early Monday as traders continued to weigh softer-than-expected consumer and producer inflation data against Federal Reserve policymakers’ hawkish comments.

At 05:20 GMT, September U.S. Dollar Index futures are trading 105.640, up 0.130 or +0.12%. On Friday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $28.26, up $0.12 or +0.41%.

Wednesday’s lower-than-expected U.S. Consumer Price Index (CPI), Thursday’s weaker-than-expected U.S. Producer Price Index (PPI) and Friday’s decline in U.S. import prices, all fueled investor hopes for less aggressive Fed tightening.

The cooling consumer and producer price data exerted the most pressure on the dollar index, driving it to its lowest level since July 1, but the index stabilized following hawkish comments from several Fed officials including noted dove Minneapolis Fed President Neel Kashkari, Chicago Fed President Charles Evans and San Francisco Federal Reserve Bank President Mary Daly.

Also on Friday, Richmond Fed President Thomas Barkin told CNBC that he would like to see inflation running at the Fed’s 2% target for “some time” before stopping rate hikes, adding there’s “still more to come to get into restrictive territory.

Looking Ahead…

Later today at 12:30 GMT, traders will get the opportunity to react to the Empire State Manufacturing Index. At 14:00 GMT, the NAHB Housing Market Index will be released.

The price action is likely to continue to be influenced by the direction of Treasury yields, Fed member comments and the FedWatch Tool that shows the odds of a 50 basis point and 75 basis point rate hike in September. Early Monday, the chances of a 50 basis point rate hike are 55.5%. The probability of a 75 basis point rate hike is 44.5%.

Keep in mind that the price action may be subdued the next two sessions as investors position themselves ahead of Wednesday’s U.S. Retail Sales Report and Fed meeting minutes.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 104.515 will signal a resumption of the downtrend. A move through 106.810 will change the main trend to up.

The main range is 101.170 to 109.140. Its retracement zone at 105.155 to 104.215 is providing support. It stopped the selling at 104.515 on August 10.

The minor range is 106.810 to 104.515. Its 50% level or pivot at 105.665 is currently being tested.

The short-term range is 109.140 to 104.515. Its 50% level at 106.830 is a key target.

Daily Swing Chart Technical Forecast

Trader reaction to the pivot at 105.665 is likely to determine the direction of the September U.S. Dollar Index on Monday.

Bullish Scenario

A sustained move over 105.665 will indicate the presence of buyers. If this move creates enough upside momentum then this could launch a near-term rally into the resistance cluster at 106.810 – 106.830.

Bearish Scenario

A sustained move under 105.665 will signal the presence of sellers. This could trigger a break into the main 50% level at 105.155. If this fails then look for the selling to possibly extend into last week’s low at 104.515, followed by the main Fibonacci level at 104.215.