US Dollar Index (DX) Futures Technical Analysis – Could Be Setting Up for Major Short-covering Rally

March U.S. Dollar Index futures closed higher on Monday as short-sellers trimmed positions ahead of three major U.S. events – President Trump’s first State of the Union speech late Tuesday, the release of the U.S. Federal Reserve Monetary Policy Statement on Wednesday, and the U.S. Non-Farm Payrolls report on Friday.

The index appears to be trying to form a support base following last week’s steep plunge. The low put in after Trump said he wanted a “strong dollar,” remains intact.

I anticipate Trump will deliver a bullish on America-type speech on Tuesday evening. This should be supportive for the index. We could see an acceleration to the upside if Trump reiterates his “strong dollar” stance.

Daily Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trying to shift to the upside with the formation of the closing price reversal bottom last Thursday.

A trade through 88.255 will negate the closing price reversal bottom and signal a resumption of the downtrend. This could lead to a test of the December 16, 2014 main bottom at 88.067.

The short-term range is 90.765 to 88.255. Its retracement zone at 89.51 to 89.81 is the first upside target.

The intermediate range is 92.36 to 88.255. Its retracement zone is 90.31 to 90.79.

The main range is 93.825 to 88.255. Its retracement zone is 91.04 to 91.70.

Daily Technical Forecast

Based on Monday’s close at 89.13 and the early price action, the direction of the index on Tuesday is likely to be determined by trader reaction to a downtrending Gann angle at 88.77.

A sustained move over 88.77 will indicate the presence of buyers. This could create a labored rally with targets layered at 89.51, 89.77, 89.81 and 90.06.

A sustained move under 88.77 will signal the presence of sellers. This could lead to a sideways-to-lower trade.

The market could sit in a range on Tuesday as investors await President Trump’s speech. The current chart pattern suggests investor indecision and impending volatility. We could see a massive short-covering rally late Tuesday/early Wednesday if Trump delivers a bullish speech.