U.S. Dollar Index Futures (DX) Technical Analysis – Testing Retracement Zone at 97.140 to 96.630

The Dollar is getting drilled against a basket of currencies on Friday with most of the selling being fueled by a stronger Euro. The single currency is currently trading near its highest level since August 26. The British Pound is also trading higher along with the Canadian Dollar. The greenback is also falling sharply against the safe-haven Swiss Franc and Japanese Yen.

At 18:48 GMT, December U.S. Dollar Index futures are trading 97.020, down 0.315 or -0.32%.

Three factors are currently driving the U.S. Dollar lower:  Optimism over Brexit, increasing chances of a Fed rate cut, and the lifting of hedges due to the possibility of a partial trade deal between the United States and China.

The Euro is the highest rated currency in the dollar index so its movement has the biggest impact. Currently, it is being lifted by hopes that a Brexit deal between the United Kingdom and the European Union could improve the odds of the Euro Zone avoiding a recession.

This week’s string of weak U.S. economic data has helped push up the probability of a Fed rate cut at the end of October to 89.3%. This is making the U.S. Dollar a less-attractive investment.

Furthermore, optimism over a partial trade deal between the United States and China, and progress toward a Brexit deal is encouraging investors to lift safe-haven dollar hedges.

Daily Technical Analysis

The main trend is down according to the daily swing chart. The trend turned down when sellers took out the last swing bottom at 97.560. The market is in no position to change the trend to up, but there is room for a counter-trend correction.

The main range is 94.975 to 99.305. Its retracement zone at 97.140 to 96.630 is currently being tested. Counter-trend buyers may try to form a support base inside this zone so be careful shorting in this area. This zone is also controlling the longer-term direction of the index.

Daily Technical Forecast

Based on the late-session price action, the direction of the December U.S. Dollar Index into the close is likely to be determined by trader reaction to the main 50% level at 97.140.

A sustained move under 97.140 will indicate the presence of sellers. Taking out the next main bottom at 96.960 will indicate the selling is getting stronger with the next downside target the Fibonacci level at 96.630, followed closely by another main bottom at 96.600.

On the upside, overcoming 97.140 late in the session could trigger a short-covering rally into a pair of Gann angles at 97.475 and 97.680.