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James Hyerczyk
U.S. Dollar Index

The U.S. Dollar is trading slightly higher against a basket of major currencies early Friday, following yesterday’s dramatic reversal to the upside. The bullish price action has also put the index in a position to post a weekly closing price reversal bottom that could signal the start of a 2 to 3 week rally.

At 04:13 GMT, December U.S. Dollar Index futures are trading 97.475, up 0.070 or +0.07%.

The rally on Thursday was fueled by whipsaw action in the Euro and the British Pound before the two currencies finished lower for the session.

The Euro was under pressure early in the session on Thursday after the European Central Bank (ECB) voted to keep rates unchanged, in what marked President Mario Draghi’s last monetary policy meeting at the institution.

The central bank also kept its forward guidance unchanged, suggesting that its main interest rates will remain at their current or lower levels until there’s strong evidence of a pick up in prices.

The Euro also weakened after business surveys pointed to stagnating economic momentum in the Euro Zone. The weakness of the region was reaffirmed on Thursday when IHS Markit’s flash composite PMI for October, seen as a good guide to economic health, remained perilously close to the 50 mark that separates growth from contraction and below forecasts.

Also driving the U.S. Dollar Index higher was a weaker British Pound. The Sterling boomeranged on Thursday following Prime Minister Boris Johnson’s call for a national election. Johnson said on Thursday he was asking parliament to approve a national election on December 12 in an effort to break the political deadlock over Brexit and ensure the UK leaves the European Union.

In a letter to opposition Labour leader Jeremy Corbyn, the prime minister said he would give parliament more time to approve his Brexit deal but that lawmakers must back a December election.

Daily December U.S. Dollar Index

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, however, momentum has been trending higher since the formation of a closing price reversal bottom at 96.885 on October 21.

A trade through 96.885 will negate the closing price reversal bottom and signal a resumption of the downtrend. The market is in no position to change the main trend to up, but there is room for a major retracement rally.

The minor trend is up. It changed to up on Thursday. The new minor bottom is 97.055. A trade through this level will change the minor trend to down. The change in trend to up confirms the shift in momentum.

The main range is 94.975 to 99.305. Its retracement zone at 97.140 to 96.630 is support.

The short-term range is 99.305 to 96.885. Its retracement zone at 98.095 to 98.380 is the primary upside target.

Daily December U.S. Dollar Index (Short-Term)

Daily Swing Chart Technical Forecast

The current move is being driven by momentum so the key level to watch is Thursday’s high at 97.555.

Bullish Scenario

A sustained move over 97.555 will indicate the presence of buyers. The daily chart shows there is no resistance until 98.095.

Bearish Scenario

A sustained move under 97.555 will signal the presence of sellers. If this move is able to generate enough downside momentum then look for the selling to possibly extend into the main 50% level at 97.140, followed by the minor bottom at 97.055.

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