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James Hyerczyk
U.S. Dollar Index

The U.S. Dollar closed lower against a basket of currencies last week as traders lightened up their long positions in reaction to Fed activity and increasing optimism over a partial trade between the United States and China.

The Fed cut its benchmark interest rate 25 basis points as widely expected, while signaling it would be pausing further easing. Fed Chair Jerome Powell also added policymakers would not be raising rates unless inflation rose “substantially”. With inflation coming in at 1.4% and the Fed having a target of 2.0%, it looks as if rates will be low for a while. This could dampen demand for the dollar.

Furthermore, China said it was pleased with the progress being made at the trade talks. This news encouraged investors to liquidate long dollar positions placed as hedges against a weakening global economy.

Last week, December U.S. Dollar Index futures settled at 97.041, down 0.558 or -0.57%.

Weekly December U.S. Dollar Index

Weekly Technical Analysis

The main trend is down according to the weekly swing chart. The trend turned down two weeks ago when sellers took out the previous main bottom at 96.960. The prior week, buyers formed a potentially bullish closing price reversal bottom. This was confirmed just barely last week because of weak buying.

The market is in no position to change the main trend to up. A trade through 97.800 will indicate the return of buyers. A move through 96.885 will negate the closing price reversal bottom and signal a resumption of the downtrend.

The short-term range is 99.305 to 96.885. Its retracement zone at 98.095 to 98.380 is the nearest upside target area and resistance.

The intermediate range is 94.975 to 99.305. Its retracement zone at 97.140 to 96.630 is potential support. Buyers are trying to build a support base inside this zone.

The main range is 93.31 to 99.305. Its retracement zone at 96.310 to 95.600 is the primary downside target. Buyers are likely to come in on a test of this zone. It is also controlling the longer-term direction of the market.

An uptrending Gann angle at 96.000 passes through this zone this week, making it a valid downside target.

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Weekly Technical Forecast

Based on last week’s price action and the close at 97.041, the direction of the December U.S. Dollar Index this week is likely to be determined by trader reaction to the intermediate 50% level at 97.140.

Bullish Scenario

A sustained move over 97.140 will indicate the presence of buyers. If this move creates enough upside momentum, we could see a test of last week’s high at 97.800. Taking out this high could trigger a further rally into a potential resistance cluster at 98.055 to 98.095.

Bearish Scenario

A sustained move under 97.140 will signal the presence of sellers. The first target is 96.885, followed closely by the major 50% level at 96.310.

The selling pressure will start to increase under 96.310 with potential targets the uptrending Gann angle at 96.000 and the main Fibonacci level at 95.600.

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