U.S. Dollar Index Futures (DX) Technical Analysis –Based on the early price action, the direction of the September U.S. Dollar Index on Friday is likely to be determined by trader reaction to the Fib level at 98.030.
The U.S. Dollar is treading water against a basket of currencies early Friday as investors await a speech by Federal Reserve Chairman Jerome Powell at the central bankers’ symposium at Jackson Hole, Wyoming. The speech is scheduled to be delivered at 14:00 GMT, but traders should watch for the early release of the transcript.
Investors want clarity and conviction from Powell. Going into the speech, he is facing tremendous political pressure from President Trump, and expectations from many investors, to deliver more rate cuts.
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Number one, Powell will need to assure the markets that the Fed will do whatever it takes to perk up the economy and prevent a U.S. recession. At the same time, he can’t overpromise and risk further turmoil in the markets.
Powell is likely to acknowledge continued risks from trade and global growth, similar to the Fed policy statement in July and the message in the Fed minutes released on Wednesday. However, be prepared for disappointment if he fails to commit to a series of aggressive rate cuts.
At 04:03 GMT, September U.S. Dollar Index futures are trading 98.210, up 0.146 or +0.15%.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. However, the upside momentum has taken a slight pause since the formation of the closing price reversal top at 98.335 on August 20. A trade through 98.335 will signal a resumption of the uptrend with 98.700 the next potential upside target.
The main trend will change to down on a trade through 96.980. This is highly unlikely today because of the series of potential retracement zone support levels between that bottom and this week’s top at 98.335.
The first potential support is a Fibonacci level at 98.030. This is followed by a series of 50% levels at 97.830, 97.660, and 97.510. The daily chart starts to open up to the downside under 97.51 with the next targets coming in at 97.230 and 97.035.
Needless today, the chart pattern suggests sellers are going to have a hard time driving through the potential support levels.
Daily Swing Chart Technical Forecast
Based on the early price action, the direction of the September U.S. Dollar Index on Friday is likely to be determined by trader reaction to the Fib level at 98.030.
A sustained move over 98.030 will indicate the presence of buyers. The first upside target is 98.335. Taking out this level could trigger an acceleration to the upside with 98.700 the next target.
A sustained move under 98.03 will signal the presence of sellers. This could lead to a labored market with 96.980 the ultimate objective for the sellers. The market could eventually get there, but it is going to take some major long liquidation and huge short-selling to get there.
Since the index is controlled by the Euro, I would key in on this currency for trading signals. If Powell is hawkish, the Euro should plunge, driving up the index. If Powell is dovish, the Euro is likely to rally, sending the index lower. But remember, Euro traders are also dealing with a dovish ECB, so its gains are likely to be limited, and hence, the dollar index’s losses will also be limited.