US Dollar Index (DX) Futures Technical Analysis – Still Building a Support Base

December U.S. Dollar Index futures plunged early in the session on Friday as investors reacted to a report that North Korea was planning to detonate a hydrogen bomb in the Pacific Ocean this week.

Investors responded in the usual fashion by selling higher-risk assets and parking the proceeds in lower-yielding assets like gold, the Japanese Yen and U.S. Treasuries.

However, like the previous flight-to-safety moves, the dollar eventually clawed back its losses as the situation dissipated. This occurred on Friday when the dollar index overcame the early deficit to close slightly higher for the session.

Traders appear to be treating geopolitical concerns as a distraction with the main focus on the direction of U.S. interest rates. After the Fed strongly suggested on Wednesday that a December interest rate hike was still in play, the emphasis for U.S. Dollar Index traders shifted to economic data from now until the Fed’s December meeting.

Daily Technical Analysis

Despite the early sell-off on Friday, the main trend remained up. A trade through 92.495 will signal a resumption of the uptrend. The trend will change to down on a trade through the closing price reversal and main bottom at 92.215.

Traders are also paying close attention to a pair of retracement zones.

The main range is 93.84 to 90.795. Its retracement zone at 92.32 to 92.68 stopped the rally on Wednesday at 92.495.

The short-term range is 90.795 to 92.495. Its retracement zone at 91.645 to 91.44 stopped the selling on Friday at 91.575.

The trigger point for an acceleration to the upside is 92.68.

While a trade through 91.215 will turn the main trend to down, I don’t think we’re going to see an acceleration to the downside. I just think it’ll mean that buyers are going to have to do a better job at forming a support base.

Keep in mind that the rally on September 20 was fueled by short-covering. Real buyers are likely to come in on the next dip. This is what we may have seen on Friday.