U.S. Dollar Index (DX) Futures Technical Analysis – Trader Reaction to 89.945 Pivot Sets the Tone

The U.S. Dollar is trading nearly flat against a basket of major currencies early Wednesday. This follows a sharp break the previous session. The move has nothing to do with the events in Washington but rather renewed weakness in U.S. Treasury yields.

Benchmark 10-year Treasury yields fell more than 6 basis points from a 10-month high hit on Tuesday and the turnaround brought an end to a three-day winning streak by the U.S. Dollar.

At 06:17 GMT, March U.S. Dollar Index futures are trading 89.995, down 0.069 or -0.08%.

The bond-market sell-off that has driven U.S. yields sharply higher this year and stalled the dollar’s decline was triggered by Democrats winning control of U.S. Congress at elections in Georgia last week.

Investors expect that to usher in huge sums in government borrowing to fund big-spending stimulus plans and have figured that higher U.S. rates might make dollars more attractive.

Daily Swing Chart Technical Analysis

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

A trade through 90.720 will change the main trend to up, while a move through 89.165 will negate the closing price reversal bottom and signal a resumption of the downtrend.

The minor range is 89.165 to 90.720. Its 50% level at 89.945 is currently being tested.

The short-term range is 92.730 to 89.165. Its retracement zone at 90.950 to 91.370 is the primary upside target that could determine the near-term direction of the index.

Daily Swing Chart Technical Forecast

The direction of the March U.S. Dollar Index on Wednesday is likely to be determined by trader reaction to the 50% level at 89.945.

Bullish Scenario

A sustained move over 89.945 will indicate the presence of buyers. If this creates enough upside momentum then look for a labored rally with potential targets at 90.305 and 90.720.

Taking out 90.720 will change the main trend to up, but the market could run into sellers again on a test of the retracement zone at 90.950 to 91.370.

Bearish Scenario

A sustained move under 89.945 will signal the presence of sellers. This could trigger the start of a steep break with potential downside targets coming in at 89.165 and 88.940.

Side Notes

Watch the price action and read the overflow at 89.950 because aggressive counter-trend buyers may try to form a secondary higher bottom at that level.