US Dollar Index (DX) Futures Technical Analysis – Approaching Retracement Zone; Could Lead to Profit-Taking

December U.S. Dollar Index futures hit their highest level since August 18 on Wednesday as short-sellers continued to get squeezed after Fed Chair Janet Yellen changed sentiment towards the dollar with hawkish commentary on Tuesday.

The Greenback was also underpinned against a basket of currencies after President Donald Trump proposed the biggest U.S. tax overhaul in three decades. Additionally, better-than-expected U.S. Durable Goods Orders raised expectations that the Federal Reserve will raise interest rates again by year-end.

Daily Technical Analysis

The main trend is up according to the daily swing chart. After consolidating for nearly a month, the trend finally turned up last week when the Fed signaled the possibility of a third rate hike in December. After a slight pullback, the dollar accelerated to the upside this week when Fed Chair Janet Yellen said that she backed a third rate hike before the end of the year.

On Wednesday, the index hit 93.415. Overtaking this level will signal a resumption of the rally with 93.840 the next upside target, followed closely by another main top at 93.88.

The daily chart indicates there is plenty of room to the upside on a sustained move over 93.88 with the next major target coming in at 96.065.

The main range is 96.065 to 90.795. Its retracement zone at 93.430 to 94.052 is the primary upside target. Currently, the index is sitting just below the lower or 50% level at 93.430.

Overcoming 93.430 could trigger a move into the main top at 93.840, followed by the upper or Fibonacci level at 94.052. We could see an acceleration to the upside if 94.052 is taken out with conviction.

A failure to overcome 93.430 will signal that the selling is greater than the buying at current price levels. The new short-term range is 91.215 to 93.415. If the selling pressure begins to increase then look for a possible pullback into its retracement zone at 93.315 to 93.055.