September U.S. Dollar Index futures closed sharply higher on Friday as investors responded positively to the stronger-than-expected U.S. Non-Farm Payrolls report. The report helped drive up Treasury yields as investors increased the chances of a Fed rate hike later this year. The higher yields made the dollar a more attractive investment.
The U.S. Dollar was also helped last week by an interest rate cut and the announcement of additional stimulus by the Bank of England. Earlier in the week, the Reserve Bank of Australia cut its benchmark rate by 25 basis points, but the Australian Dollar rallied, suggesting that investors weren’t impressed by the news. This may prompt the RBA to make another cut before the end of the year.
This week, the Reserve Bank of New Zealand is widely expected to cut its benchmark interest rate 25-basis points on August 11. This week, U.S. investors will get the opportunity to react to Preliminary Non-Farm Productivity and Preliminary Unit Labor Costs on August 9 and Retail Sales on August 12.
Technically, the main trend is down according to the daily swing chart. However, momentum has been to the upside since August 2.
The main range is 93.025 to 97.62. Its retracement zone at 95.32 to 94.78 stopped the sell-off last week at 94.94, inside the zone.
The new short-term range is 97.62 to 94.94. Its retracement zone at 96.28 to 96.60 was the primary upside target. This zone was tested on Friday. Additionally, another major 50% level at 96.48 falls inside the retracement zone. This zone stopped the rally on Friday along with a downtrending angle. This angle drops to 96.37 today.
Based on Friday’s close at 96.14, the first upside objective is the short-term 50% level at 96.28. A move through this price could be labored because of potential resistance levels at 96.37, 96.48 and 96.60. The short-term Fib level at 96.60 is the trigger point for an acceleration to the upside with 97.00 the next likely target.
The first downside target is a steep uptrending angle at 95.94. This angle is important because it has guided the market higher for three days. If this angle fails as support then look for the selling to extend into the next uptrending angle at 95.44.
Based on last Friday’s price action, traders should watch the price action and order flow at 96.48. Trader reaction to this price should determine the near-term direction of the market. This is a major 50% level so it is very important to the longer-term structure of the market.