US Dollar Index

U.S. Dollar Index (DX) Futures Technical Analysis – Advance GDP Reading Sets the Tone

The U.S. Dollar is trading lower against a basket of major currencies on Thursday, nearing a one-week low, after Federal Reserve Chair Jerome Powell soothed investor worries about continued aggressive rate hikes.

At 04:18 GMT, September U.S. Dollar Index futures are trading 106.155, down 0.176 or -0.17%. On Wednesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $28.42, down $0.24 or -0.84%.

Dovish Powell Sinks Demand for Greenback

After early session strength, the dollar starting sinking after the Fed raised the benchmark rate by an as-expected 75 basis points to bring it closer to neutral, while noting that although the labor market remains strong, other economic indicators have softened.

The index slid even further after Federal Reserve Chairman Powell said that based on the strength of employment, he didn’t believe the economy was in recession, and that a recession was not necessarily required to tame super-heated inflation.

The price action suggests U.S. Dollar investors were probably betting on hawkish comments from Powell and were disappointed when he leaned the other way. Additionally, the rise in U.S. stock markets led to a shift in investor sentiment, which likely led investors who bought the safe-haven dollar for protection to reduce positions.

Focus Shifts to US Advance GDP

Traders will get the opportunity to react to third quarter advance GDP at 12:30 GMT. The report is expected to show the economy grew by 0.4%, up from the previously released 1.6%.

A higher than expected reading could give the dollar a boost because it will mean the Fed has room to raise rates further. A lower than expected reading could drive the dollar lower since it could encourage the Fed to reduce the size and pace of rate hikes.

Daily September U.S. Dollar Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum is trending lower.

A trade through 109.140 will signal a resumption of the uptrend. A move through 103.200 will change the main trend to down.

The minor trend is down. This is controlling the momentum. A trade through 105.900 will indicate the selling pressure is getting stronger. A move through 107.300 will change the minor trend to up.

The short-term range is 103.200 to 109.140. The market is currently testing its retracement zone at 106.170 to 105.470.

On the upside is minor resistance at 106.645 and a long-term Fibonacci level at 107.780.

On the downside, the key support is a price cluster at 105.470 to 105.155, followed by a Fibonacci level at 104.215.

Daily Swing Chart Technical Forecast

Trader reaction to the 50% level at 106.170 is likely to determine the direction of the September U.S. Dollar Index early Thursday.

Bullish Scenario

A sustained move over 106.170 will indicate the presence of buyers. Overtaking the minor pivot at 106.645 will indicate the buying is getting stronger. This could trigger a surge into the minor top at 107.300, followed by the Fib level at 107.780.

Bearish Scenario

A sustained move under 106.170 will signal the presence of sellers. Taking out 105.99 will indicate the selling pressure is getting stronger. This could trigger a break into the 105.470 to 105.155 support cluster.

Side Notes

Since the main trend is up, look for buyers on a pullback into 105.470 to 105.155.

Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.