US Dollar Index (DX) Futures Technical Analysis – ECB, Washington Politics Driving a Two-Sided Trade

Volatility drove the U.S. Dollar in both directions on Thursday before the September U.S. Dollar Index finished lower for the session. The dollar was primary boosted by weakness in the Euro, which represents about 57% of the index. However, political turmoil in the United States continued to cap the market’s gains.

A dovish tone in the European Central Bank’s (ECB) July policy meeting minutes was the catalyst behind the Euro’s weakness and the dollar index’s strength. However, rumors about the possible resignation of Gary Cohn, director of the U.S. National Economic Council, generated the volatility while limiting the upside.

Technical Analysis

The main trend is up according to the daily swing chart, however, momentum may be shifting to the downside with the formation of Wednesday’s closing price reversal top.

A trade through 94.145 will negate the chart pattern and signal a resumption of the uptrend. This could lead to a fast rally into a couple of 50% levels at 94.175 and 94.323. The daily chart opens up to the upside over 94.323 with the next levels layered at 94.60, 94.78 and 94.96.

A move through 92.83 will change the main trend to down. This could trigger further weakness with the next downside target the main bottom at 92.39.

The short-term range is 92.83 to 94.145. Its retracement zone is 93.49 to 93.33. The main range is 92.39 to 94.145. Its retracement zone is 93.26 to 93.06. The combination of the two retracement zones creates a key support cluster at 93.33 to 93.26.

On Thursday, the index rebounded after a test of 93.26. The close over the pair of retracement zones is helping to maintain the upside bias.

We’re in a news driven market so investors should continue to watch for a two-sided trade. A move through 94.145 will be impressive but buyers are going to have to come in strong because of the layers of resistance levels. There is room to the downside, but don’t look for big expansion until 92.39 is taken out. Once again new sellers are going to have to come in and be willing to sell weakness. Taking out sell stops just won’t be enough.