U.S. Dollar Index (DX) Futures Technical Analysis – Trader Reaction to 94.950 to 91.370 Sets the Near-Term Tone

The U.S. Dollar is trading higher against a basket of major currencies early Tuesday after posting its best three-day performance since September as investors covered short positions while 10-year Treasury yields pushed higher to levels not seen since March 2020.

Prior to this current rebound rally, the greenback has fallen as much as 14 percent from last year’s peak in the first quarter as the novel coronavirus began to wreak havoc on the global economy. The selling pressure on the U.S. Dollar accelerated in late 2020 as investors increased bets on a weak recovery and the need for additional fiscal stimulus measures.

At 04:05 GMT, March U.S. Dollar Index futures are trading 90.550, up 0.108 or +0.12%.

Helping to give the U.S. Dollar a boost was the news that Morgan Stanley strategists have dropped their expectations of near-term weakening in the dollar amid a regime shift in U.S. rates propelled partly by prospects for meaningful fiscal expansion, Bloomberg reported.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, but momentum has been trending higher since the formation of the closing price reversal bottom at 89.165 on January 6.

A trade through 89.165 will negate the closing price reversal bottom and signal a resumption of the downtrend. A move through 92.730 will change the main trend to up.

The minor trend is up. This confirmed the shift in momentum to the upside.

The minor range is 89.165 to 90.720. Its 50% level at 89.945 is potential support.

The short-term range is 92.730 to 89.165. Its retracement zone at 90.950 to 91.370 is the primary upside target. This zone is also controlling the near-term direction of the dollar index.

Since the main trend is down, we’re looking for sellers to show up on a test of 90.950 to 91.370.

Daily Swing Chart Technical Forecast

We’re looking for the rally to continue on Tuesday with a surge through yesterday’s high at 90.720. This should trigger a move into the retracement zone at 90.950 to 91.370.

Since the main trend is down, we’re looking for resistance in this zone. If the selling is strong enough then look for the start of a normal correction of the rally from 89.165.

If there is no rally then look for a pullback into 89.945. If aggressive counter-trend traders can stop the selling on a test of this zone then look for a secondary higher bottom to form. This could then launch a rally into 90.950 to 91.370.