U.S. Dollar Index Futures (DX) Technical Analysis – Dollar and Treasury Yields Diverging

The U.S. Dollar is trading sharply lower against a basket of major currencies on Thursday despite a steep rise in U.S. Treasury yields. It’s safe to say at this time that the strong correlation between Treasury yields and the dollar has been broken, at least temporarily.

The index is being pressured by a stronger British Pound, which is up 1.94% against the U.S. Dollar. The Euro is up 0.31%. The Canadian Dollar is stronger by 0.30%. The safe haven Japanese Yen and Swiss Franc are down 0.42% and 0.08% respectively.

The Euro presents 57.6% of the index. The Japanese Yen 13.6%, The British Pound 11.9%. The Canadian Dollar 9.1% and the Swiss Franc 3.6%.

The dollar is on track for its biggest daily drop in five weeks after a Chinese state media report suggested China wants to reach an agreement with the United States to avoid any escalation in a protracted trade row, soothing investor concerns.

The news fueled appetite for trade-oriented currencies such as the Euro and the Australian dollar.

The British Pound rose sharply after positive comments on Brexit from the leaders of the Republic of Ireland and the U.K.

“The Prime Minister (Johnson) and Taoiseach (Varadkar) have had a detailed and constructive discussion,” the joint statement said.

“Both continue to believe that a deal is in everybody’s interest. They agreed that they could see a pathway to a possible deal.”

At 20:01 GMT, December U.S. Dollar Index futures are trading 98.410, down 0.405 or -0.41%.

Daily Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending lower since the formation of the closing price reversal top at 99.305 on October 1.

The minor trend is up. A trade through 98.300 will change the minor trend to down and reaffirm the shift in momentum.

The short-term range is 97.560 to 99.305. Its retracement zone at 98.435 to 98.230 is currently being tested. This zone stopped the selling at 98.300 on October 3.

The main retracement zone is 97.955 to 97.635. This zone is the next downside target and major support zone. This zone is controlling the longer-term direction of the index.

Daily Technical Forecast

Based on the current price at 98.410, the direction of the December U.S. Dollar Index into the close is likely to be determined by trader reaction to the price cluster at 98.435 to 98.430.

Holding above 98.435 will indicate that buyers are coming in to defend the uptrend.

Crossing to the bearish side of the downtrending Gann angle at 98.430 will indicate the selling is getting stronger with nearby targets coming in at 98.300 and 98.230.