US Dollar Index Grinding Toward ‘Pandemic High’ at 102.990

The U.S. Dollar is trading flat against a basket of major currencies early Wednesday as it seeks to continue its grind toward its March 20, 2020 “Pandemic Top”.

The greenback is also in a position to post its best month in seven years, boosted by the prospect of aggressive U.S. interest rate hikes and on safe-haven flows fueled by slowing growth in China and Europe.

At 05:48 GMT, June U.S. Dollar Index futures are trading 102.260, down 0.058 or -0.06%. On Tuesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $27.35, up $0.17 or +0.63%.

The key component driving the index higher is the weaker Euro. The single-currency fell below its pandemic low to 1.0635 in the early trade. It is now trading at a five-year low on fears for energy security and Europe’s growth after Russia’s Gazprom said it would halt gas supply to Poland and Bulgaria later in the day.

Another component, the British Pound, is down more than 2% against the U.S. Dollar this week as soft retail sales data has prompted a re-think of Britain’s rates outlook. The dovish tone has helped push the Sterling to a fresh 21-month low.

Finally, the Japanese Yen is treading water this week ahead of the Bank of Japan meeting on Wednesday and Thursday. Traders see some risk of adjustments to forecasts or even policy changes to try and arrest the Yen’s recent tumble.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through the intraday high at 102.405 will signal a resumption of the uptrend. A move through 99.810 will change the main trend to down.

The major long-term support remains the retracement zone at 98.200 to 96.720.

Daily Swing Chart Technical Forecast

The direction of the June U.S. Dollar Index into the close on Wednesday is likely to be determined by trader reaction to 102.318.

Bullish Scenario

A sustained move over 102.318 will indicate the presence of buyers. Taking out the intraday high at 102.405 will indicate the buying is getting stronger. This could trigger an acceleration into the “Pandemic Top” at 102.990.

Bearish Scenario

A sustained move under 102.318 will signal the presence of sellers. This will also put the market in a position to form a potentially bearish closing price reversal top. This won’t change the trend to down, but if confirmed, it could trigger the start of a minimum 2 to 3 day correction.