U.S. Dollar Index (DX) Futures Technical Analysis – Treading Water Ahead of Philly Fed, Jobless Claims Data

The U.S. Dollar is trading steady against a basket of major currencies on Thursday, shortly before the release of key reports on manufacturing, the labor market and the housing sector. Traders will also get the opportunity to respond to comments from several Fed member speeches.

At 10:12 GMT, December U.S. Dollar Index futures are trading 106.425, up 0.273 or +0.26%. On Wednesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $28.62, down $0.06 or -0.21%.

The media is trying to convince traders that yesterday’s strong U.S. retail data may be enough to encourage the Fed to keep raising rates aggressively. Furthermore, they are trying to convince us that the hawkish Fed speakers are supporting the U.S. Dollar, but that is not being reflected in the FedWatch Tool which is now showing an 85% chance of a 50-basis point rate hike in December.

In my opinion, the Forex markets including the dollar haven’t moved much this week because the steep drop in Treasury yields since last week Thursday was too much, too fast. Professional traders need time to adjust their models to a possible pivot by the Fed and they don’t want to move to fast on the basis of one CPI report.

Looking Ahead…

Today’s Philly Fed Manufacturing Index, due to be released at 13:30 GMT, is expected to improve slightly from -8.7 to -6.0. The Weekly Jobless Claims report is expected to rise slightly from 225K to 228K. Building Permits and Housing Starts are expected to dip.

Essentially, the Fed wants to see easing in manufacturing and housing and a rise in unemployment claims.

The Fed speakers including Bullard, Bowman and Mester, are expected to make hawkish remarks by reminding traders that the Fed is still likely to raise rates. Bullard could be a market mover if he comes out excessively hawkish or excessive dovish.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 105.155 will signal a resumption of the downtrend. A move through 110.890 will change the main trend to up.

On the upside, the major resistance is a pair of Fibonacci levels at 107.780 and 108.197. On the downside, the key support is the August 10, 2022 main bottom at 104.150.

Daily Swing Chart Technical Forecast

Trader reaction to 105.910 is likely to determine the direction of the December U.S. Dollar Index on Thursday.

Bullish Scenario

A sustained move over 105.910 will indicate the presence of buyers. Taking out 106.995 will indicate the buying is getting stronger. This could trigger a surge into 107.780 – 108.197, where the index is likely to be met by fresh selling pressure.

Bearish Scenario

A sustained move under 105.910 will signal the presence of sellers. This could lead to a retest of this week’s low at 105.155. If this level fails as support then look for the selling to possibly extend into 104.150.