U.S. Dollar Index (DXY) Futures Technical Analysis – Traders Tracking Rising Rate Hike Probabilities

The U.S. Dollar is treading water against a basket of currencies on Wednesday as traders take a breather following yesterday’s dramatic closing price reversal top.

After hitting a multi-year high early Tuesday, sellers hit the dollar index hard after data showed U.S. private sector activity was weaker than expected in August, prompting bets the Federal Reserve may be less aggressive in its rate hiking cycle.

The news shouldn’t have come as a surprise since the multiple Fed rate hikes are designed to slow down the economy in order to combat soaring inflation. However, in doing so, the central bank risks causing a recession, which could encourage policymakers to go for smaller rate hikes moving forward instead of the super-sized 75-basis-point rate hike that the market was anticipating just 24 hours ago.

At 10:27 GMT, September U.S. Dollar Index futures are trading 108.625, up 0.071 or +0.07%. On Tuesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $29.06, down $0.11 or -0.39%.

Traders Eyeing Multiple Indicators Ahead of Powell’s Highly Anticipated Speech on Friday

Dollar traders are watching U.S. Treasury yields, which are slightly lower on Wednesday, as investors awaited a fresh batch of economic data and Treasury auctions. Yields are currently testing a key area on the charts that could make or break the U.S. Dollar.

Ahead of Powell on Friday, there is fresh U.S. economic data later today. Durable goods for July will be released at 12:30 GMT, with pending home sales for July to follow at around 14:00 GMT.

Fed Chair Jerome Powell’s speech at Jackson Hole on Friday will be closely watched for more clues on future interest rate hikes.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A change in trend is highly unlikely, but a trade through 107.990 will confirm yesterday’s closing price reversal top. This will shift momentum to the downside. A trade through 109.205 will negate the chart pattern while signaling a resumption of the uptrend.

The first support is a long-term Fibonacci level at 107.780. This is followed by a minor retracement zone at 106.860 to 106.306.

Daily Swing Chart Technical Forecast

Trader reaction to 108.600 is likely to determine the direction of the September U.S. Dollar Index on Wednesday.

Bullish Scenario

A sustained move over 108.600 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into 109.205. This is a potential trigger point for an acceleration to the upside.

Bearish Scenario

A sustained move under 108.600 will signal the presence of sellers. Taking out 107.990 will indicate the selling is getting stronger with 107.780 the next target. If this level fails, the index could plunge from 106.860 to 106.306.