The U.S. Dollar strengthened against a basket of currencies on Friday with the rally primarily driven by a plunge in the Euro. The dollar was underpinned by stronger-than-expected retail sales for May that eased fears of a slowing U.S. economy. The news also led to a slight reduction in the chances for a Fed rate hike. However, while investors see little chance of a rate hike in June, the chance of a rate cut in July remains relatively certain. Interest rate futures traders are pricing in a 23% chance of a cut in June, and an 87% likelihood of at least one cut in July, according to the CME Group’s FedWatch Tool.
On Friday, September U.S. Dollar Index futures settled at 97.065, up 0.556 or +0.58%.
The Euro represents 57% of the Dollar Index so when it plunges, the dollar index rallies considerably. This was the case on Friday. The Euro tumbled 0.58% after Germany’s 10-year bond yield hit a record low on Friday and Spanish yields dropped below 0.5% for the first time, as weak data from China fanned concern about the impact of the prolonged trade impasse with the United States and expectations of central bank rate cuts.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. The trend turned up Friday when buyers took out the last main top at 96.925. A trade through 95.890 will change the main trend to down. The next major upside targets are the May 30 main top at 97.625 and the May 23 main top at 97.715.
The short-term range is 97.715 to 95.890. Its retracement zone at 96.805 to 97.020 was the primary upside target. This zone is controlling the near-term direction of the index. Closing above this level will help support the developing upside bias.
The main range is 94.695 to 97.715. Its retracement zone at 96.205 to 95.850 is support. It helped put in the bottom at 95.890 on June 7.
Daily Swing Chart Technical Forecast
Based on Friday’s close at 97.065, the direction of the September U.S. Dollar Index on Monday is likely to be determined by trader reaction to the short-term Fibonacci level at 97.020.
A sustained move over 97.020 will indicate the presence of buyers. If this continues to generate enough upside momentum then traders may take a run at 97.625 to 97.715.
A sustained move under 97.02 will signal the return of sellers. This could trigger a break into the 50% level at 96.800. If this fails then look for the selling to possibly extend into a minor pivot at 96.490.