U.S. Dollar Index (DX) Futures Technical Analysis – Trader Reaction to 90.395 Determines Short-Term Direction

The U.S. Dollar finished lower against its major peers on Thursday, helped by a surge in the British Pound after Britain and the European Union (EU) struck a post-Brexit trade deal, boosting the market’s appetite for riskier assets and raising hopes the United Kingdom can avoid a turbulent economic departure at the end of the year.

On Thursday, March U.S. Dollar Index futures settled at 90.250, down 0.090 or -0.10%.

Britain clinched a trade deal with the EU on Thursday, just seven days before its exits one of the world’s biggest trading blocs in its most significant global shift since the loss of empire.

The Euro finished slightly higher, but trading was subdued for most of the session because of the Christmas bank holiday. Mixed headlines around Brexit and U.K. trade and uncertainty around a COVID stimulus package in the U.S. failed to move the Euro much.

U.S. President Donald Trump threatened on Tuesday not to sign an $892 billion coronavirus relief bill, hopes for which have boosted risk assets in recent weeks, saying the amount in stimulus checks should be increased.

The Canadian Dollar strengthened against its U.S. counterpart on Thursday after a trade deal was reached between Britain and the European Union, bolstering the global economic outlook, and domestic data showed a jump in the value of building permits.

The value of Canadian building permits rose by 12.9% in November from October, beating analysts’ estimate of a 3.0% gain, Statistics Canada data showed.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 89.640 will signal a resumption of the downtrend. The main trend will change to up on a move through 92.730.

The minor trend is also down. A trade through 91.150 will change the minor trend to up. This will shift momentum to the upside.

The minor range is 91.150 to 89.640. The index closed on the weak side of its pivot at 90.395, giving it a downside bias.

The short-term range is 92.730 to 89.640. If the minor trend changes to up then its retracement zone at 91.185 to 91.550 will become the primary upside target.

Short-Term Outlook

The longer-term forecasts are calling for a weaker U.S. Dollar in 2021, but over the short-run, we could see a counter-trend rally mostly on position-squaring and profit-taking ahead of the New Year.

The Fed’s monetary stimulus and the government’s fiscal stimulus are two reasons for the bearish outlook, but if President Trump screws up the latest coronavirus relief package, we could see some short-covering early next week.

Stimulus, a successful vaccination launch and demand for risk are the three reasons to expect a weaker Dollar, however, all have to work in sync. Otherwise we could have cause for a short-covering rally.