U.S. Dollar Index Futures (DX) Technical Analysis – Pivot at 96.760 Controls Direction into Close

The U.S. Dollar is trading higher against a basket of major currencies on Friday with most of the rally being fueled by a steep drop in the Euro. The move has nearly erased all of yesterday’s steep losses that were triggered by a dovish comments from a prominent Federal Open Market Committee member. The rally has also solidified a higher close for the week.

At 16:52 GMT, September U.S. Dollar Index futures are trading 96.750, up 0.410 or +0.43%.

The greenback was trading a little better before the regular session futures market opening after the New York Federal Reserve tempered the dovish comments from is president John Williams on Thursday.

After implying the Fed should “act swiftly” to avoid having to deal with too-low inflation and interest rates, a New York Fed representative said Williams’ comments were not about immediate policy direction.

The dollar index surged to the upside after the Euro plunged in reaction to increased bets for a European Central Bank interest rate cut as early as next week. Money markets are now pricing in a roughly 60% chance of a 10-basis point rate cut at the July 25 ECB policy meeting, versus a 40% chance earlier in the week.

Daily Technical Analysis

The main trend is down according to the daily swing chart. After a shift in momentum to the upside since June 25, the index resumed its downtrend on Thursday when sellers took out the swing bottom at 96.320. However, the lack of follow-through to the downside on Friday suggests the selling is a little week.

A trade through 96.320 later in the session will signal a resumption of the downtrend, while a trade through 97.100 will change the main trend to up. Taking out main tops at 97.195 and 97.265 could trigger an acceleration into other main tops at 97.625 and 97.715.

The minor range is 97.195 to 96.320. Its 50% level or pivot at 96.760 is likely to control the price action into the close.

On the downside, support is a short-term 50% level at 96.280, a major 50% level at 96.205 and the short-term Fibonacci level at 96.065.

Daily Technical Forecast

Based on the current price at 96.750, the direction of the September U.S. Dollar Index the rest of the session is likely to be determined by trader reaction to the pivot at 96.760.

Bullish Scenario

A sustained move over 96.760 will indicate the presence of buyers. If this move creates enough upside momentum then look for the late-session rally to possibly extend into the major downtrending Gann angle at 97.075. This angle stopped the rally at 97.195 on July 9 and at 97.100 on July 17.

Taking out 97.100 could trigger an acceleration strong enough to take out main tops at 97.10, 97.195 and 97.265.

Bearish Scenario

A sustained move under 96.760 will signal the presence of sellers. If the downside momentum is strong enough then look for a pullback into the uptrending Gann angle at 96.490. Crossing to the weak side of the downtrending Gann angle at 96.435 could drive the market into a series of retracement levels at 96.280, 96.205 and 96.065.