U.S. Dollar Index Futures (DX) Technical Analysis –Needs to Clear 97.265 to Sustain Rally

Weeks after a few analysts predicted the demise of the U.S. economy and the U.S. Dollar, the greenback sits in a position to challenge its high for the year. All it will take to drive it through these levels will be neutral or hawkish remarks about the economy from Federal Reserve Chairman Jerome Powell on his first day of testimony before a U.S. Congressional sub-committee.

At 05:58 GMT, September U.S. Dollar Index futures are trading 95.730, down 0.630 or -0.65%.

Traders have virtually eliminated the chances of a 50-basis point rate cut, but a 25-basis point cut is still widely expected. Nonetheless, the direction of the dollar will continue to be driven by the movement in U.S. Treasury yields. Traders should also watch the Euro because it is a proxy for dollar index. Traders are starting to price in renewed stimulus by the European Central Bank starting in September.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending higher since the formation of the closing price reversal bottom on June 25 at 95.365. That bottom was put in by hawkish comments from Powell and St. Louis Federal Reserve President James Bullard.

A trade though 97.265 will change the main trend to up. This could trigger a surge into a pair of tops at 97.625 and 97.715.

The downtrend will resume on a trade through 95.365. This is highly unlikely, but the market is up 11 days from its recent bottom, putting it in a position to post a potentially bearish closing price reversal top.

The intermediate range is 97.715 to 95.365. Its retracement zone at 96.820 to 95.540 is support. Trading on the strong side of this zone will help maintain the upside bias.

The main range is 94.696 to 97.715. Its retracement zone at 96.205 to 95.850 is controlling the longer-term direction of the index.

Daily Swing Chart Technical Forecast

Based on the recent price action and the current price at 95.730, the direction of the September U.S. Dollar Index on Wednesday is likely to be determined by trader reaction to the June 18 main top at 97.265.

Bullish Scenario

Taking out 97.265 will change the main trend to up. A sustained move over this level will indicate the buying is getting stronger. This could lead to an extension of the rally into the pair of tops at 97.625 and 97.715.

Bearish Scenario

A sustained move under 97.265 will signal the return of sellers. If this creates enough downside momentum then look for a break into the Fibonacci level at 96.820. If this level fails then look for the selling to extend into the 50% level at 96.540.

The 50% level at 96.540 is a potential trigger point for an acceleration into the main 50% level at 96.205. Trader reaction to this level could determine the longer-term direction of the index.

Closing Price Reversal Top

Due to the prolonged move up in terms of price and time, the dollar index may be ripe for a potentially bearish closing price reversal top. Taking out 97.195 then closing lower for the session will be a sign that the selling is greater than the buying at current price levels. This could trigger the start of a 2 to 3 day correction.