U.S. Dollar Index (DX) Futures Technical Analysis – Trend Down, but Index in Window of Time for Reversal Bottom

The U.S. Dollar continued to weaken against a basket of major currencies on Wednesday, hitting its lowest price since March 12. The current weakness in the U.S. Dollar is not a reflection of the outlook for the U.S. economy, but rather the result of an improving outlook for the global economy. Investors feel that the pace of the global recovery is so strong that the worst of the coronavirus pandemic is over.

So why is the U.S. Dollar declining? Well, you have to go back to March 9 when the dollar index bottomed at 94.530. If you look around the Forex market charts, you’ll see that this was a significant date for many currencies.

March 9 was the date that Forex traders showed the rest of the world that the U.S. Dollar is the currency to buy during a major financial crisis. The subsequent rally took the dollar index to 103.960 on March 23, which happened to be the day the U.S. stock markets bottomed.

March 23 was the date that investors decided that with all the stimulus money pumped into the economy and all the projections about the flattening of coronavirus outbreaks that eventually the madness would come to an end.

The U.S. Dollar isn’t falling because investors are betting against the U.S. economy, but rather they are betting on a global economic recovery. And with that recovery seemingly on track, investors no longer feel they need to hold U.S. Dollar as protection against a massive global financial crisis.

On Wednesday, June U.S. Dollar Index futures closed at 97.259, down 0.400 or -0.41%.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 100.605 will change the main trend to up. This is highly unlikely on Thursday. However, the index is down 13 sessions from its last main top, which puts it inside the window of time to form a closing price reversal bottom.

A closing price reversal bottom won’t change the main trend to up, but it could trigger a 2 to 3 day counter-trend rally, designed to alleviate some of the excessive selling pressure.

The minor trend is also down. A trade through 99.995 will change the minor trend to up. This will also shift momentum to the upside.

The main range is 94.530 to 103.960. Its retracement zone at 98.130 to 99.245 is controlling the longer-term direction of the market. It is also potential resistance.

Short-Term Outlook

We’re going to be watching two levels on Thursday – the previous session’s low at 97.155 and the previous session’s close at 97.259.

Taking out 97.155 will signal a resumption of the downtrend. However, taking out this level then moving above 97.259 will form an intraday reversal bottom. This would be the first sign that the buying is greater than the selling at current price levels.

Additionally, an inside day could also be interpreted as the market getting ready to transition from down to up.

However, don’t get too excited about the upside potential of any rally until there is a close above the major Fibonacci level at 98.130.