US Dollar Index (DX) Futures Technical Analysis – May Be Poised for Steep Drop

March U.S. Dollar Index futures hit a three-year low on Tuesday, led by the strength in the heavily weighted index component Euro. The single currency was boosted by a report which showed Euro Zone consumer confidence jumped much more than expected in January, underlining the strong momentum in the Euro Zone economy.

The main trend is down according to the daily swing chart. A trade through 89.84 will signal a resumption of the downtrend. If selling volume increases on this move, we could see an acceleration to the downside.

The daily chart indicates there is no support under 89.84 with the next major target the December 16, 2014 main bottom at 88.067.

On the upside, the first resistance is the September 8 main bottom at 90.68. There s an old adage that states “old bottoms tend to become new tops”. We’re going to respect that adage and call this level resistance. It essentially stopped a rally late last week when the index topped out at 90.765.

A trade through 90.765 will change the main trend to up. This could lead to a test of the September 20 main top at 91.00. This price is likely the trigger point for an acceleration to the upside.

With this type of chart pattern, trend and the distance between the current price and the next main bottom target, I wouldn’t be surprised by a steep sell-off by the end of the week.