DXY Index Technical Analysis – Underpinned by Rising Rate Hike Expectations

The U.S. Dollar is inching lower against a basket of major currencies on Monday after hitting a seven-week high earlier in the session. The early price action suggests a little tentativeness by buyers as the index approached the high of the year at 105.500.

The index is also being influenced by intraday reversals to the upside by the Euro and the British Pound. A slightly better Canadian Dollar and Japanese Yen are also putting pressure on the greenback.

At 09:45 GMT, the March U.S. Dollar Index is trading 105.100, down 0.058 or -0.06%. This is down from an intraday high of 105.320. On Friday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $28.48, up $0.20 or +0.71%.

We’re probably looking at a little profit-taking and position-squaring following last week’s stellar performance that was fueled by stronger-than-expected inflation data and rising expectations of at least three more rate hikes by the Federal Reserve in March, May and June. Furthermore, the market is now pricing U.S. interest rates to peak at 5.4% in July and remain above 5% through the end of the year.

Later today, investors will get the opportunity to respond to the latest U.S. data on Core Durable Goods and Pending Home Sales. Although both reports are important gauges of the strength of the economy, they don’t carry as much weight a reports on inflation, manufacturing and the labor market. Nonetheless, they are capable of producing a kneejerk reaction in the market.

Daily March US Dollar Index Technical Analysis

The main trend is up according to the daily swing chart. A trade through the last main top at 105.500 will reaffirm the uptrend. The main trend will change to down on a move through 100.680. This means the trend is safe. However, due to the prolonged move up in terms of price and time, the market is vulnerable to a closing price reversal top.

The minor trend is also up. A trade through 103.685 will change the minor trend to down. This will also shift momentum to the downside.

The nearest resistance is the long-term 50% level at 105.725. The closest support is the minor pivot at 104.503.

Daily March US Dollar Index Technical Forecast

Trader reaction to 105.158 is likely to determine the direction of the March U.S. Dollar Index on Monday.

Bullish Scenario

A sustained move over 105.158 will indicate the presence of buyers. Taking out the intraday high at 105.320 will indicate the buying is getting stronger. This could create the upside momentum needed to challenge the Jan. 6 main top at 105.500, followed by the long-term 50% level at 105.723.

Bearish Scenario

A sustained move under 105.158 will signal the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into the minor pivot at 104.503.

Side Notes

A close under 105.158 will form a closing price reversal top. If confirmed, this could trigger the start of a 2 to 3 day correction with 104.503 the first target.