U.S. Dollar Index Futures (DX) Technical Analysis – Testing Major Retracement Zone at 96.715 to 96.350

The U.S. Dollar is trading sharply lower against a basket of currencies on Friday as foreign currency traders make adjustments to the strong possibility of a Fed rate cut sooner than previously expected. The catalyst behind today’s price action is a huge miss on the headline number of the U.S. Non-Farm Payrolls report.

According to a government report, the economy added only 75,000 jobs in May, well below the 180,000 forecast. This was the second time in four months that jobs growth totaled less than 100,000. The unemployment rate remained unchanged at 3.6%, but wage growth came in lower than expected.

At 18:23 GMT, June U.S. Dollar Index futures are trading 96.485, down 0.512 or -0.53%.

For the day, the dollar is losing ground to the Euro which is exerting the most downside pressure on the dollar index. The British Pound is also moving higher, while the greenback plunged against the Canadian Dollar. The safe-haven Japanese Yen and Swiss Francs produced mixed results until finally turning higher.

Essentially, the dollar lost ground because lower rates make the greenback a less-attractive investment. Supporting the notion behind a rate cut was market expectations for a Fed rate cut. According to the CME Group’s FedWatch tool, the market is pricing in a 27.5% chance of a rate cut in June and a 79% chance of a cut in July.

Daily Technical Analysis

The main trend is down according to the daily swing chart. A trade through 96.655 reaffirmed the downtrend. The next target is the 96.365 main bottom. Taking out this level will reaffirm the downtrend with 95.170 the next major downside target. A trade through 97.390 will change the trend to up.

The main range is 95.170 to 98.260. The index is currently testing its retracement zone at 96.715 to 96.350. This zone is controlling the near-term direction of the dollar index.

Daily Technical Forecast

The downside momentum into the close on Friday suggests sellers may make a run at the Fibonacci level at 96.350. Since this is paired with the 96.365 main bottom, we could see a technical bounce on the initial test of this area.

Taking out 96.350 could trigger an acceleration to the downside with the next target angle coming in at 96.045.

If there is no follow-through to the downside then look for a late session short-covering rally. This could trigger a further rally into the main 50% level at 96.715 and the downtrending Gann angle at 96.885.

Overview

Looking ahead to next week, crossing to the weak side of the 96.715 to 96.350 retracement zone will put the index in an even weaker position.