James Hyerczyk
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U.S. Dollar Index

The U.S. Dollar soared against a basket of currencies on Friday on the back of better-than-expected U.S. economic data, a plunge in the Euro and the repatriation of dollars tied up in foreign investments.

In the U.S., consumer spending increased solidly in July as households bought a range of goods and services. The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.6% last month after an unrevised 0.3% gain in June. Economists polled by Reuters had forecast consumer spending advancing 0.5% last month.

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The Euro, which accounts for 57% of the dollar index’s value, hit its weakest level since May 2017. Some say it was related to month-end position-squaring. Others said worries that the European Central Bank would cut its benchmark interest rate and announce a new round of quantitative easing at its September 15 meeting, led to the heavy selling.

Finally, U.S. investors seeking a better return and trying to avoid risks in other countries are moving money back into the United States, which is helping to drive up demand in the dollar.

On Friday, September U.S. Dollar Index futures settled at 98.860, up 0.405 or +0.41%.

Daily Sept U.S. Dollar Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed when buyers took out the August 1 main top at 98.700.

The new main bottom is 97.370. The main trend will change to down if buyers take out this bottom.

If the swing from 97.370 to 98.970 forms a range then its retracement zone at 98.170 to 97.980 will become the primary downside target.


Daily Swing Chart Technical Forecast

The direction of the September U.S. Dollar Index on Monday is likely to be determined by trader reaction to Friday’s high at 98.970. Volume may be extremely low on Monday because of a U.S. bank holiday.

Bullish Scenario

A sustained move over 98.970 will indicate the presence of buyers. If this move continues to generate strong upside momentum then the index will move closer to the January 3, 2017 main top at 100.055.

The index will be helped the most by a weaker Euro.

Bearish Scenario

A sustained move under 98.970 will signal the presence of sellers. The first potential downside target is Friday’s low at 98.345. Taking out this low will make 98.970 a new minor top. This could lead to further weakness into the minor retracement zone at 98.170 to 97.980.

Traders should also watch for a closing price reversal top. Taking out 98.970 then turning lower for the session will put the index in a position to form a potentially bearish closing price reversal top. This could trigger the start of a 2 to 3 day counter-trend correction.

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