US Dollar Index Rebounds as Chart Pattern Indicates Possible Counter-Trend Rally

Key Takeaways

• The US Dollar has shown signs of a possible counter-trend rally, supported by a chart pattern indicating a closing price reversal bottom.
• Despite the Federal Reserve’s indication of a possible end to interest rate hikes, the dollar rebounded from earlier losses on Thursday.
• Fed may shift its focus to inflation if the banking crisis eases and inflation remains high.

Overview

The U.S. Dollar is inching higher against a basket of major currencies on Friday after posting a dramatic closing price reversal bottom the previous session. The chart pattern is not indicative of a change in trend, but if confirmed, it could lead to a two to three day counter-trend rally and a shift in momentum to the upside.

At 02:21 GMT, June U.S. Dollar Index futures are trading at 102.335, up 0.128 or +0.13%. On Thursday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $27.85, up $0.03 or +0.11%.

US Dollar Rebounds Despite Fed’s Indication of Possible End to Interest Rate Hikes

On Thursday, the dollar rebounded from earlier losses after the Federal Reserve hinted at the possibility of an end to interest rate hikes, while the Swiss National Bank and Bank of England moved forward with further rate increases.

The Fed had already raised its benchmark funds rate by 25 basis points on Wednesday, but shifted its language from “ongoing increases” to “some additional” rises. This move was significant considering the recent volatility in financial markets following a run on Silicon Valley Bank and the collapse of Credit Suisse.

Analysts suggest that if the banking crisis eases and inflation remains high, the Fed may focus more on fighting inflation and less on concerns about the impact of the crisis on the economy. This would be supportive for the U.S. Dollar.

Daily June U.S. Dollar Index Technical Analysis

The main trend is down according to the daily swing chart, but Thursday’s closing price reversal bottom suggests momentum may be getting ready to shift to the upside.

A trade through 101.555 will signal a resumption of the downtrend. A more through 105.490 will change the main trend to up.

The minor trend is also down. A trade through 104.720 will change the minor trend to up. This will confirm the shift in momentum.

The main range is 100.345 to 105.490. The nearest resistance is its retracement zone at 102.310 to 102.918.

The long-term range is 106.917 to 100.345. Its retracement zone at 103.631 to 104.406 is the major upside target area.

Daily June U.S. Dollar Index Technical Forecast

Trader reaction to the Fibonacci level at 102.310 is likely to determine the direction of the June US Dollar Index on Friday.

Bullish Scenario

A sustained move over 102.310 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into the main 50% level at 102.918.

Bearish Scenario

A sustained move under 102.310 will signal the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into the minor bottom at 101.555. This is also a potential trigger point for an acceleration into the Feb. 2 main bottom at 100.345.