US Dollar Index

U.S. Dollar Index (DX) Futures Technical Analysis – Rally Suggests Investors Placing Bets on Hot CPI Read

The U.S. Dollar is edging higher against a basket of major currencies on Monday, attempting to claw back the previous session’s decline. Traders are eyeing Wednesday’s U.S. Consumer Price Index (CPI) as this week’s major market moving event. However, global investors also put Chinese data and European energy security at the top of their lists that could drive relentless volatility.

At 06:13 GMT, September U.S. Dollar Index futures are trading 107.155, up 0.334 or +0.31%. On Friday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $28.57, down $0.02 or -0.07%.

The greenback reversed course on Friday following the release of a stronger-than-expected U.S. Non-Farm Payrolls report that eased concerns about a U.S. recession, but did little to dampen the chances of a 75-basis point rate hike by the Fed on July 27.

However, Wednesday’s CPI report could put the bull market back on track if it comes in hotter-than-expected. A high reading would greenlight the Fed to continue to raise rates at a 50 to 75 basis point clip, perhaps even into September.

The index could also get a boost from another plunge in the heavily-weighted Euro. The single-currency is struggling against the greenback due to energy concerns, which are likely to hamper the European Central Bank’s ability to raise interest rates aggressively to combat rising inflation.

Daily September U.S. Dollar Index

Short-Term Outlook

Trader reaction to 107.128 is likely to determine the direction of the September U.S. Dollar Index on Monday.

Bullish Scenario

A sustained move over 107.128 will indicate the presence of buyers. If this creates enough upside momentum then look for an intraday surge into last Friday’s closing price reversal top at 107.615.

Taking out 107.615 will signal a resumption of the uptrend with a long-term Fibonacci level at 107.780 the next likely upside target. Counter-trend traders could come in on the first test of this level, but overcoming it could trigger an acceleration to the upside with no target in sight.

Bearish Scenario

A sustained move under 107.128 will signal the presence of sellers. Taking out Friday’s low at 106.640 will confirm the closing price reversal top. This won’t change the trend. But it could trigger the start of a 2 to 3 day correction. The target being the short-term retracement zone at 105.408 to 104.887 the next major target area.

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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.