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U.S. Dollar Index (DX) Futures Technical Analysis – Traders Betting on More Aggressive Fed Policy Tightening

·3 min read

The U.S. Dollar is trading near a four-year high against a basket of peers Friday afternoon, after government data showed U.S. consumer prices picked up the pace in May, strengthening expectations the Federal Reserve may have to continue to increase interest rates aggressively through September to combat inflation.

At 18:00 GMT, September U.S. Dollar Index futures are trading 104.060, up 0.979 or +0.95%. The Invesco DB US Dollar Index Bullish Fund ETF (UUP) is at $27.84, up $0.23 or +0.83%.

Greenback Underpinned by Higher Treasury Yields

The U.S. Labor Department on Friday reported in the 12 months through May, the Consumer Price Index increased 8.6% after rising 8.3% in April. Economists had hoped that the annual CPI rate peaked in April.

Following the inflation report, two-year Treasury yields, which are highly sensitive to rate hikes, spiked to 3.057%, the highest since June 2008. Benchmark 10-year yields reached 3.178%, the highest since May 9.

Dollar Bulls Anticipating Stronger Fed Response to Soaring Inflation

The Fed is expected to raise its benchmark interest rates 50 basis points next Wednesday. Traders are also looking for a similar move in July. Now that there is little evidence that inflation has peaked, the market expects the Fed to speed up rate hikes with the possibility of an additional 50 basis point rise in September.

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

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through the intraday high at 104.090 will signal a resumption of the uptrend. A move through 101.445 will change the main trend to down.

The minor trend is also up. A move through 102.005 will change the minor trend to down. This will shift momentum to the downside.

The short-term range is 104.800 to 101.170. The index is trading on the strong side of its retracement zone at 103.410 to 102.985, making it support.

The minor range is 101.170 to 104.090. Its 50% level at 102.630 is trailing support.

Daily Swing Chart Technical Forecast

Trader reaction to 103.080 will determine the direction of the September U.S. Dollar Index into the close on Friday.

Bullish Scenario

A sustained move over 103.080 will indicate the presence of buyers. Overtaking and holding the short-term Fibonacci level at 103.410 will indicate the buying is getting stronger.

A late session trade through the intraday high at 104.090 could trigger a near-term acceleration to the upside with 104.800 the next target.

Bearish Scenario

A sustained move under 103.080 will signal the presence of sellers. This will put the market in a position to form a potentially bearish closing price reversal top.

Potential downside targets come in at 102.985 and 102.630. The latter is the last potential support before the 102.005 minor bottom.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire