Daily September U.S. Dollar Index

US Dollar Index (DX) Futures Analysis – July 3, 2013

On Wednesday, the September U.S. Dollar Index strengthened early in the session but was unable to hold on to its gains by the end of the day. The early rally was a follow-through move following Tuesday strong rally. Overbought conditions and Thursday’s central bank meetings may have played a role in the reversal. Some even site this week’s low volume holiday trade as well as Friday’s U.S. Non-Farm Payrolls report as reasons why investors decided to pare their positions.

Thursday’s European Central Bank and Bank of England meetings could move the markets because each central bank is expected to mention the possibility of the need for more stimulus. Both the Euro Zone and U.K. economies remain sluggish despite historically low interest rates and mountains of stimulus. With the U.S. considering reducing its stimulus and these central bank pondering more stimulus, the advantage is shifting toward owning the U.S. Dollar. Any moves by the ECB or BoE to provide stimulus will weaken their currencies, prompting a sharp rally in the U.S. Dollar Index.

Friday’s U.S. Non-Farm Payrolls report could drive the dollar higher if the data is strong enough to warrant a change in the Fed’s stimulus program. A strong boost in the number of new jobs will indicate the economy is still recovering, giving the Fed room to begin reducing its aggressive bond-buying program. This would in effect raise U.S. interest rates, making the dollar a more attractive investment.

Daily September U.S. Dollar Index
Daily September U.S. Dollar Index

Technically, a closing price reversal top is usually a sign that the selling pressure is greater than the buying pressure at current price levels. It often occurs after a strong 7 to 10 rally. Typically, following a reversal top, the market begins a fast 2 to 3 day break equal to at least 50% of the last rally.

Wednesday’s action suggests the market found resistance on a slow-moving Gann angle at 83.06. The subsequent sell-off triggered a sell-off, leading to a weak close. If the support angle at 83.11 fails to hold then look for a follow-through to the downside.

The key to a closing price reversal top is the follow-through move. A break through 83.275 will confirm the potentially bearish pattern. If there is no follow-through then the market may begin reverse back up and resume the uptrend. 

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.

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