U.S. Dollar Index Futures (DX) Technical Analysis – With Euro Running the Show, Strengthens Over 98.835, Weakens Under 98.685

The U.S. Dollar is trading flat against a basket of currencies early Thursday, but the index really isn’t a good indicator of what is happening in the Forex markets because it is heavily weighted in Euros, which are also trading flat.

We’re seeing weakness in the safe-haven currencies due to a thawing of tensions between the United States and China. Meanwhile, the Euro is barely moving ahead of the European Central Bank interest rate decision and monetary policy statement.

At 06:48 GMT, September U.S. Dollar Index futures are trading 98.640, up 0.012 or +0.01%.

The U.S. Dollar is currently sitting at a six-week high against the safe-haven Japanese Yen after an exchange of olive branches between Washington and Beijing on trade stoked investors’ appetite for risk. The Swiss Franc has also been pressured this week but firming a little on Thursday due to position-squaring ahead of the ECB announcements.

Traders expect the ECB to cut rates, promise to keep rates low for longer and provide banks relief from the side effects of negative rates. However, there is still some uncertainty over whether the central bank will make new asset purchases. This item could cause volatility in the Euro and U.S. Dollar Index because traders have already priced in new asset purchases.

Daily Technical Analysis

The main trend is up according to the daily swing chart. A trade through 99.330 will signal a resumption of the uptrend. A trade through 97.370 will change the main trend to down.

The minor trend is also up. A trade through 98.035 will change the minor trend to down. This will also shift momentum to the downside.

The support is being provided by a pair of retracement zones at 98.350 to 98.120 and 98.155 to 97.880. Combining the two zone makes 98.155 to 98.120 the most important support area.

The short-term range is 99.330 to 98.035. Trader reaction to its retracement zone at 98.685 to 98.835 will determine the next major move in the markets. If buyers can take out the zone then look for a new high over the near-term. If sellers come in then a secondary lower top will form and selling pressure will increase.

Daily Technical Forecast

Based on the early price action and the current price at 98.640, the direction of the EUR/USD is likely to be determined by trader reaction to the short-term 50% level at 98.685.

Bullish Scenario

A sustained move over 98.685 will indicate the presence of buyers. This could lead to a fast rally into the short-term Fibonacci level at 98.835. This is a potential trigger point for an acceleration to the upside with 99.330 the next major upside target.

Bearish Scenario

A sustained move under 98.685 will signal the presence of sellers. The first target is the 50% level at 98.350. This is followed by the support cluster at 98.155 to 98.120.

If 98.120 fails then look for the selling to possibly extend into 98.035 to 97.880. A failure at 97.880 will put the dollar in a weak position.