US Dollar Index (DX) Futures Technical Analysis – Last Major Short-Term Support Cluster 92.22 to 92.18

Flight-to-safety buying drove investors into gold, U.S. Treasurys and the Japanese Yen on Tuesday, putting pressure on the September U.S. Dollar Index. Traders were reacting to a drop in U.S. equities which fell in response to the threat of another nuclear weapons test by North Korea.

Also pressuring the U.S. Dollar was a drop in U.S. government debt yields. They fell in reaction to North Korean tensions and in response to Fed speakers. The yield on the benchmark 10-year Treasury Note fell below 2.100 to 2.075 percent, making the U.S. Dollar a less attractive investment.

Traders also reacted to a dovish speech from Fed Governor Lael Brainard who said the U.S. central bank should go far as to make it clear it is comfortable pushing prices modestly above the Fed’s 2-percent target.

“We should be cautious about tightening policy further until we are confident inflation is on track to achieve our target,” said Brainard.

Minneapolis Fed President Neel Kashkari said on Tuesday that the Fed rate hikes may be slowing inflation, wage growth and job growth.

“There may be a lot more slack in the labor market than we appreciate,” Kashkari said. “The Fed may have allowed inflation expectations to drift lower.”

Technical Analysis

The main trend is down according to the daily swing chart. A trade through 91.550 will signal a resumption of the downtrend. A move through 93.305 will change the minor trend to up.

The short-term range is 91.550 to 93.305. Its retracement zone is 92.43 to 92.22. The index straddled this zone on Tuesday before closing in the lower end of the range. This zone is essentially controlling the short-term direction of the market.

The main range is 94.055 to 91.550. Its retracement zone at 92.80 to 93.10 is resistance. It has prevented rallies the last four days.

It looks as if the key area to watch is the support cluster at 92.22 to 92.18. The index could break to at least 91.86 if this support area fails.