U.S. Dollar Index (DX) Futures Technical Analysis – Weakens Under 90.806, Strengthens Over 91.115

The U.S. Dollar Index hit its lowest level in more than two years on Thursday as signs of progress towards U.S. fiscal stimulus and optimism about vaccines encouraged investors to move money into riskier assets.

According to Reuters, lawmakers in Washington have failed to reach an agreement on economic stimulus to help relieve the impact of COVID-19 in the United States, but there were early signs that a $908 billion bipartisan proposal could be gaining traction.

Risk appetite was also boosted by optimism about recent developments towards the roll-out of COVID-19 vaccines. The U.K. approved Pfizer Inc’s vaccine on Wednesday.

At 09:53 GMT, December U.S. Dollar Index futures are trading 90.990, down 0.125 or -0.14%.

“Additional fiscal stimulus ahead of the new President Joe Biden assuming office would lower the current downside risks for the economy and thus principally fuel inflation expectations, which will weaken the dollar in view of the Fed’s long-term expansionary monetary policy targets,” wrote Commerzbank FX strategist Esther Reichelt in a note to clients.

“The subject is likely to remain an important issue on the FX market for now,” she said.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed earlier today when sellers took out yesterday’s low.

The main trend is safe for now, a move through 93.190 will change it to up, but due to the prolonged move down in terms of price and time, the index begins today’s session inside the window of time for a potentially bullish closing price reversal bottom.

This chart pattern won’t change the trend to up, but if confirmed, it could trigger the start of a 2 to 3 day counter-trend rally.

On the downside, potential support is a pair of main bottoms at 90.806 and 90.461.

On the upside, the resistance is a long-term Fibonacci level at 91.815.

Daily Swing Chart Technical Forecast

Given the earlier lower-low, the direction of the December U.S. Dollar Index is likely to be determined by trader reaction to 91.115.

Bearish Scenario

A sustained move under 91.115 will indicate the presence of sellers. Taking out the September 21, 2018 main bottom at 90.806 will indicate the selling is getting stronger with the next target the July 9, 2018 main bottom at 90.461. This is a potential trigger point for an acceleration to the downside.

Bullish Scenario

A sustained move over 91.115 will signal the presence of buyers. It’s not likely to be new buyers driving a rally, but rather short-covering. If this move is able to generate enough countertrend momentum then we could see a near-term retest of 91.815.