U.S. Dollar Index Futures (DX) Technical Analysis – Reaction to 98.095 – 98.380 Retracement Zone Sets Near-Term Tone

The U.S. Dollar is trading higher against a basket of major currencies late in the session on Friday. Not only is the index being underpinned by a sharply rise this week in U.S. Treasury yields, but fundamentally, sentiment has shifted to the positive side as a de-escalation in the U.S.-China trade war removes a huge risk to the global economic outlook. On Thursday, the dollar spiked higher on the news that China and the United States had agreed to cancel some tariffs as part of a potential preliminary pact to end their prolonged trade war.

At 20:03 GMT, December U.S. Dollar Index futures are trading 98.205, up 0.216 or +0.22%.

Helping to aid the dollar was a weaker Euro, which hit a new three-week low on Friday. The Euro is the most heavily weighted foreign currency in the index. The safe-haven Japanese Yen also hit a five-month low against the U.S. Dollar. Rising Treasury yields helped widen the spread between U.S. Government bond yields and Japanese Government bond yields, making the U.S. Dollar a more attractive asset.

Daily Technical Analysis

The main trend is up according to the daily swing chart. The trend turned up on Tuesday when buyers took out the previous main top at 97.800. The new main bottom is 96.960. A trade through this bottom will change the main trend to down.

The main range is 94.975 to 99.305. Its retracement zone at 97.140 to 96.630 proved to be solid support, stopping sellers at 96.885 on October 21 and at 96.960 on November 1.

The short-term range is 99.305 to 98.885. Its retracement zone at 98.095 to 98.380 is currently being tested.

Daily Technical Forecast

The next major decision for investors will be how to handle the test of the retracement zone at 98.095 to 98.380.

Bullish traders are going to try to take out the upper or Fibonacci level of this zone at 98.380. If they can establish support above this level then they could take a shot at the main top at 99.305 over the near-term.

Bearish traders are going to try to form a secondary lower top inside this zone. If aggressive counter-trend sellers can stop the rally inside 98.095 to 98.380 and eventually break the index under 98.095 then a secondary lower top will form and prices could retreat back towards the main retracement zone at 97.140 to 96.630 and the pair of bottoms at 96.960 and 96.885.