US Dollar Index (DX) Futures Technical Analysis – Trader Reaction to 94.815 Will Determine Near-Term Direction

James Hyerczyk
US Dollar Index

December U.S. Dollar Index futures finished slightly lower on Wednesday with the market primarily mirroring the price action in the EUR/USD.

The dollar was also pressured by a report of a possible delay in U.S. corporate tax implementation. CNBC reported that U.S. House of Representatives Speaker Paul Ryan on Wednesday left the door open to a possible delay in implementing a huge corporate tax cut, following a Washington Post report that his fellow Republicans in the Senate are exploring the option.

The reason why this news is potentially bearish for the U.S. Dollar is because any delays in getting tax reform passed or implemented will have a potentially negative impact on the Fed’s plan to raise rates next year because of its potential effect on economic growth.

Daily December U.S. Dollar Index

Daily Swing Chart Analysis

The main trend is up according to the daily swing chart. It was reaffirmed on Tuesday when the market traded through the previous top at 95.06. However, there was very little follow-through to the upside. This could be a sign that the selling is greater than the buying at current price levels.

It also suggests that investors are having a hard time buying strength with concerns over tax reform and a near flattening of the yield spread lingering over their heads. This may also be an early indication of the dollar’s vulnerability.

A trade through 95.07 will signal a resumption of the uptrend. If the buying increases on this move then the next target is the July 5 top at 96.065.

The main trend will change to down on a trade through 94.115. This is followed by another main bottom at 93.365.

Daily Retracement Zone Analysis

The major retracement zone is 94.048 to 94.815. This zone is controlling the longer-term direction of the market.

This week, the index has been straddling the upper or Fibonacci level at 94.815. Over the short-term, trader reaction to this level will set the tone for the day.

A sustained move over 94.815 will indicate that buyers are still coming in to support the market. This could create the momentum needed to overcome 95.07.

A sustained move under 94.815 will signal that sellers are coming into the market. This could trigger a spike into the main bottom at 94.115. Taking this level out will change the main trend to down with the next target the major 50% level at 94.048.

There are no major reports this week so investors will be reacting to the news. The main story is tax reform and the timing of the implementation of the corporate tax cuts. If the corporate tax cuts are delayed, the dollar index could plunge. If the story fails to gain traction then the direction of the Euro will dictate the movement and direction of the index.

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