U.S. Dollar Index Futures (DX) Technical Analysis – Test of 96.700 to 96.220 Means Big Decision for Dollar Traders

The U.S. Dollar plunged against a basket of currencies on Friday as optimism about the outlook for a U.S.-China trade deal lifted investors’ appetite for risk, reducing safe-haven demand for the greenback, on well-below average volume.

“The dollar has declined against a backdrop of coursing risk-on sentiment in global equity markets with investors anticipating the U.S.-China Phase 1 trade deal to be signed off on soon, which will come amid a world of expansive monetary policy and benign inflation,” analysts at Action Economics said in a note.

On Friday, March U.S. Dollar Index futures settled at 96.545, down 0.569 or -0.59%.

The Euro had its best session in nearly five months, hitting a 10-day high in the process. The British Pound rose after European Commission President Ursula von der Leyen said the European Union may need to extend the deadline for talks about a new trade relationship with British. The Canadian Dollar was supported by higher oil prices.

Daily Technical Analysis

The main trend is down according to the daily swing chart. More importantly, the index formed a new secondary lower top which indicates the selling pressure is getting stronger.

A trade through 97.405 will change the main trend to up. A move through 96.295 will reaffirm the downtrend.

The short-term range is 98.045 to 96.295. Its retracement zone at 97.170 to 97.380 stopped the rally last week, helping to form the secondary lower top.

The major retracement zone is 96.700 to 96.220. This zone is controlling the longer-term direction of the index. It stopped the selling on November 1 at 96.555 and on December 13 at 96.295.

Daily Gann Angle Analysis

March U.S. Dollar index futures collapsed on Friday when sellers took out a Gann angle cluster at 96.860. The selling pressure came to a halt on a Gann angle at 96.575. If this angle fails then look for the selling to extend into the uptrending Gann angle at 96.435. This is the last potential Gann angle support before the 96.295 main bottom and the major Fibonacci level at 96.220.

Short-Term Outlook

Whether we see a counter-trend rally, or an acceleration to the downside will be determined by trader reaction to the major retracement zone at 96.700 to 96.220.

An upward bias could develop on a sustained move over 96.700, and the downward bias will likely escalate on a sustained move under 96.220.