U.S. Dollar Index (DX) Futures Technical Analysis – Trader Reaction to 92.600 on Tuesday Sets Early Tone

The U.S. Dollar hit its highest level against a basket of major currencies since August 27 on Monday as market expectations build that the Federal Reserve could taper its massive stimulus sooner than previously anticipated despite rising COVID-19 cases.

The index rose sharply early in the session on follow-through buying tied to Friday’s stronger-than-expected August producer price index, but it gave back most of its gains when U.S. Treasury yields fell.

At 20:46 GMT, December U.S. Dollar Index futures are trading 92.630, up 0.056 or +0.06%.

Traders will now be looking to the August consumer price index, a more direct measure of inflation, which is due to come out at 12:30 GMT on Tuesday. Economists surveyed by FactSet are expecting the reading to show that consumer prices jumped 5.3% on an annual pace in August.

A higher than expected CPI reading could move the Fed closer to announcing its tapering timeline at its September 21-22 policy meeting. Treasury yields could rise on the news, making the U.S. Dollar a more attractive asset.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The trade through 92.850 on Monday changed the main trend to up. A move through 92.315 will change the main trend to down.

The short-term range is 93.710 to 91.935. Its retracement zone at 92.825 to 93.050 stopped the rally at 92.88 on Monday.

Short-Term Outlook

The direction of the December U.S. Dollar Index early Tuesday is likely to be determined by trader reaction to 92.600.

Bullish Scenario

Look for an early upside bias on Tuesday on a sustained move over 92.600. If this move creates enough upside momentum then look for the buying to possibly extend into 92.825, followed closely by 92.880.

Overtaking 92.880 will indicate the buying is getting stronger with the short-term Fibonacci level at 93.050 the next likely upside target.

Bearish Scenario

A sustained move under 92.600 will signal the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into the main bottom at 92.315. Taking out this level will change the main trend to down.