U.S. Dollar Index Futures (DX) Technical Analysis – Tight Range Expected Until ECB Decisions on Thursday

The U.S. Dollar is inching higher against a basket of currencies early Monday, while hovering just below its two day high and well above its two-week low hit on September 4. The greenback took a fairly large hit early last week as global tensions receded on the announcement of the resumption of trade talks between the U.S. and China, set for early October. This reduced its appeal as a safe-haven asset.

At 05:51 GMT, September U.S. Dollar Index futures are trading 98.390, up 0.028 or +0.03%.

The dollar was also pressured following the release of weaker than expected ISM US Manufacturing PMI data. This raised concerns over a future recession.

The greenback weakened early Friday as a mixed labor report on the U.S. jobs market in August reinforced the view of a slowing expansion and the possibility of more interest rate cuts from the Federal Reserve. However, comments from Fed Chair Jerome Powell helped the U.S. Dollar recover most of its earlier losses.

“We’re not forecasting or expecting a recession,” Powell said. “The most likely outlook is still moderate growth, a strong labor market and inflation continuing to move back up.”

“Our main expectation is not at all that there will be a recession,” Powell said.

Daily Technical Analysis

The main trend is up according to the daily swing chart. The market’s two day retreat was a normal pullback into a retracement zone and did not signal a change in trend or a shift in momentum.

A trade through 99.330 will signal a resumption of the uptrend. The main trend will change to down on a trade through 97.370.

The main range is 96.980 to 99.330. Its retracement zone at 98.155 to 97.880 is controlling the near-term direction of the index. It stopped the selling at 98.035 last week.

The intermediate range is 97.370 to 99.330. Its retracement zone at 98.350 to 98.120 is providing additional support.

The two zone combine to create a solid support band at 98.155 to 98.120. This is the most important area on the chart.

The new minor range is 98.330 to 98.035. If there is a rally today then its retracement zone at 98.685 to 98.835 will become the primary upside objective.

Daily Technical Forecast

Based on the early price action and the current price at 98.390, the direction of the September U.S. Dollar Index on Monday is likely to be determined by trader reaction to the 50% level at 98.350 and the downtrending Gann angle at 98.330.

Bullish Scenario

A sustained move over 98.350 will indicate the presence of buyers. If this creates enough upside momentum then look for the rally to possibly extend into an uptrending angle at 98.620, followed by a 50% level at 98.685 and a potential resistance cluster at 98.83 to 98.835.

Bearish Scenario

A sustained move under 98.330 will signal the presence of sellers. This could trigger a break into 98.160 to 98.120. If this fails then look for the selling to possibly extend into last week’s low at 98.035 and an uptrending Gann angle at 97.995.

Overview

We’re not expecting too much movement this week until Thursday when the European Central Bank (ECB) releases its interest rate decision and monetary policy statement. We expect the ECB to be aggressive, but we aren’t sure how much has already been priced into the market.

There are no major U.S. economic releases on Monday, but a major move in the British Pound could trigger a reaction by the dollar index.