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James Hyerczyk

The U.S. Dollar futures contract surged against a basket of major currencies on Monday, inching over its October 1, 2019 top at 98.735 in the process. In the cash market, the index moved closer to its October 1 top at 98.890.

Most of its gains were attributed to a weaker Euro, which fell 0.30%. Competition with the Japanese Yen over coronavirus hedging caused the dollar to lose 0.10% against the safe-haven Japanese Yen.

The catalysts behind the U.S. Dollar’s strength were optimism that the U.S. economy would remain resilient to the spread of the coronavirus across the world and more bad news about the Euro Zone economy.

The U.S. Dollar hit a four-month high against the Euro on Monday as weak data in the Euro Zone made the greenback a more attractive investment. The rout against the single-currency began on Friday when German industrial output suffered its biggest fall in December since the recession-hit year of 2009.

The weakness in the Euro continued on Monday after investor morale in the Euro Zone fell for the first time in four months in February over fears that China will not be able to contain the coronavirus outbreak. Sentix’s index for the Euro Zone fell to 5.2 from 7.6 in January. The Reuters consensus forecast was for a fall to 4.1.

At 14:29 GMT, March U.S. Dollar Index futures are trading 98.725, up 0.011 or +0.01%.

Daily March U.S. Dollar Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through yesterday’s high at 98.770 will signal a resumption of the uptrend. The main trend will change to down on a move through 97.165.

A change in trend is highly unlikely, but seven days up from the last main bottom puts the index inside the window of time for a closing price reversal top. This won’t change the main trend to down, but it could trigger a 2 to 3 pullback into a short-term 50% to 61.8% retracement zone.

The short-term range is 97.165 to 98.735. Its retracement zone at 97.950 to 97.765 is a preliminary downside target zone.


Daily Swing Chart Technical Forecast

Monday’s price action and the current price at 98.725 likely means the direction of the index on Tuesday will be determined by trader reaction to yesterday’s high at 98.770. The upside momentum is strong so we’d like to see the trend confirmed by a new higher-high.

Bullish Scenario

Taking out 98.770 will indicate the presence of buyers. If this creates enough momentum then look for the rally to continue into 98.890. This is a potential trigger point for an acceleration to the upside with 99.205 the next target.

Bearish Scenario

The inability to overcome 98.770 will signal the presence of sellers. Turning lower for the session will be another sign that the selling is greater than the buying at current price levels. Taking out Monday’s low at 98.490 will be another sign of weakness.

Side Notes

Due to the prolonged move up in terms of price and time, traders should watch for a higher-high, lower close. Taking out 98.770 then closing lower for the day will produce a closing price reversal top. If confirmed, watch for a 2 to 3 day break with 97.950 to 97.765 the next potential target zone.

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