US Dollar Index (DX) Futures Technical Analysis – Risk Sentiment Controlling the Price Action

December U.S. Dollar Index futures are under pressure early Friday. Some of weakness is being fueled by follow-through selling following Thursday’s plunge. Some is in response to safe-haven buying in reaction to North Korea’s firing of another ballistic missile over Japan.

We could see further weakness later today if investors decide to aggressively dump higher-risk assets and move their funds into the safety of the Japanese Yen, Gold or U.S. Treasurys.

Technical Analysis

The main trend is down according to the daily swing chart.

Yesterday’s potentially bearish closing price reversal top at 92.42 was confirmed earlier today when sellers took out 91.805. If the selling pressure continues, we should see a test of the short-term retracement zone at 91.61 to 91.42.

Taking out 92.42 will negate the reversal pattern and could trigger a surge to the upside with the main top at 93.06 the next likely target.

The main range is 93.84 to 90.795. Its retracement zone at 92.32 to 92.68 is resistance. This zone stopped the rally on Thursday at 92.42.

Forecast

Based on the current price at 91.86 (0316 GMT) and the earlier price action, the direction of the index today is likely to be determined by trader reaction to the uptrending angle at 92.05.

A sustained move under 92.05 will signal the presence of sellers. If the downside momentum increases then look for a test of the 50% level at 91.61. The best downside target today is the potential support cluster at 91.42. We could see an intraday technical bounce on a test of this price cluster.

The support cluster at 91.42 is also the trigger point for an acceleration to the downside with the next target coming in at 91.11. The last uptrending angle before the 90.795 main bottom is 90.95.

Overcoming 92.05 and sustaining the rally will indicate the return of buyers. There is room to the upside if the buying volume is strong. Upside targets include the main 50% level at 92.32, the closing price reversal top at 92.42 and a downtrending angle at 92.47.

Risk sentiment will ultimately determine the direction of the index today. If investors decide that the North Korean missile launch is a major event then the dollar index should weaken.