U.S. Dollar Index Futures (DX) Technical Analysis – Trader Reaction to Retracement Zone at 98.095-98.380 Will Set Tone

With the index trading sideways-to-slightly higher this week, the direction of the December U.S. Dollar Index on Thursday is likely to be determined by trader reaction to the main 50% level at 98.095.
James Hyerczyk
U.S. Dollar Index

The U.S. Dollar is trading flat against a basket of major currencies early Thursday in limited action, following a slightly higher close the previous session. Fundamentally, continuing to weigh on the greenback are doubts over the progress of U.S.-China trade talks.

According to the Wall Street Journal, citing people familiar with the matter, U.S.-China trade negotiations have ‘hit a snag’ over farm purchases, with Beijing not wanting a deal that looks one-sided in favor of the United States.

At 04:16 GMT, December U.S. Dollar Index futures are trading 98.220, down 0.010 or -0.01%.

Underpinning the dollar has been the weaker Euro, the heaviest weighted currency in the index. Exerting the most pressure on the greenback is the safe-haven buying driving up the Japanese Yen and the Swiss Franc. The British Pound has been rangebound after a strong surge on Monday. The Canadian Dollar continues to lose ground to its U.S. counterpart.

The U.S. Dollar could turn sharply lower against the major currencies if there is a steep drop in U.S. Treasury yields and demand for risky assets. A strong recovery in the Euro will also sink the index.

Daily December U.S. Dollar Index

Daily Swing Chart Technical Analysis

The main trend is up. A trade through 98.30 will signal a resumption of the uptrend. The main trend will change to down on a trade through 96.960, however, this is highly unlikely.

Nonetheless, the index is up nine sessions from its last main bottom, which puts it inside the window of time for a potentially bearish closing price reversal top chart pattern. If there is no reversal top then taking out yesterday’s low at 98.140 will break the chart pattern, signaling the selling may be greater than the buying at current price levels.

The main range is 99.305 to 96.885. The market is currently trading inside its retracement zone at 98.095 to 98.380. Trader reaction to this zone will determine whether the index breakouts toward tops at 98.955 and 99.305, or collapses into a short-term retracement area.

The short-term range is 96.960 to 98.300. Its 50% level at 97.630 is a potential downside target and possible support level.

Daily Swing Chart Technical Forecast

With the index trading sideways-to-slightly higher this week, the direction of the December U.S. Dollar Index on Thursday is likely to be determined by trader reaction to the main 50% level at 98.095.

Bullish Scenario

A sustained move over 98.095 will indicate the presence of buyers. If this can continue to generate enough upside momentum then look for the rally to possibly extend into yesterday’s high at 98.30, followed by the main Fibonacci level at 98.380. This is a potential trigger point for an acceleration to the upside.

Bearish Scenario

A sustained move under 98.095 will signal the presence of sellers. This is a potential trigger point for an acceleration to the downside. The daily chart indicates there is plenty of room to the downside with the short-term 50% level at 97.630 the next likely downside target.

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