US Dollar Index (DX) Futures Technical Analysis – Trader Reaction to 93.09 Pivot Will Set Weekly Tone

September U.S. Dollar index futures closed lower last week, but put up a good fight before succumbing to intense selling pressure. Early in the week, the index was supported by investors selling higher-yielding currencies like the Australian and New Zealand Dollars. Additionally, the EUR/USD traded flat. This is important because the Euro represents about 57% of the index. Most of the selling pressure was attributed to a stronger Japanese Yen.

The real selling pressure hit the dollar index on Friday when most major currencies rose after the release of disappointing U.S. consumer inflation data.

The U.S. Dollar Index will continue to follow U.S. Treasury yields, but the size of the reaction will be determined by whether Treasury yields are dropping because of flight-to-safety trading, or in reaction to U.S. economic data. The strongest reaction will likely be to news that reduces the odds of a Fed rate hike later this year.

 

Technical Analysis

The weekly chart clearly shows the impact of a potentially dovish Fed moving forward.

The main trend is down according to the weekly swing chart. Although a closing price reversal bottom the week-ending August 4 has temporarily stopped the downside momentum.

A trade through 92.39 will negate the closing price reversal bottom and signal a resumption of the downtrend. This would put the index on a path towards the May 3, 2016 main bottom at 91.45.

On the upside, a move through last week’s high at 93.785 will catch bearish traders by surprise. This is likely to trigger a very strong short-covering rally.

The short-term range is 92.390 to 93.785. Its 50% level or pivot at 93.09 is controlling the direction of the market.

The main range is 97.515 to 92.39. If there is a breakout to the upside then its retracement zone at 94.95 to 95.56 will become the primary upside target.

Forecast

Based on last week’s close at 92.96, the direction of the Dollar Index this week is likely to be determined by trader reaction to the short-term pivot at 93.09.

A sustained move under 93.09 will signal the presence of sellers. This could generate the downside momentum needed to challenge 92.39. This price is the trigger point for an acceleration into 91.45.

A sustained move over 93.09 will indicate the presence of buyers. This could trigger a surge into a downtrending angle at 93.52. Crossing to the bullish side of this angle will indicate the buying is getting stronger. This could trigger a move into last week’s high at 93.785.

The weekly chart indicates there is plenty of room to the upside if buyers come in strong over 93.785. The next major target over this level is 94.95.

Watch the price action and read the order flow at 93.09 all week. Trader reaction to this pivot will determine the direction of the Dollar Index this week.