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U.S. Dollar Index (DX) Futures Technical Analysis – Core Inflation Number Sets the Tone on Friday

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The U.S. Dollar closed sharply higher against a basket of major currencies on Thursday, ahead of key inflation data that should influence the Federal Reserve’s policy tightening path.

The rally by the greenback was primarily driven by a steep drop in the Euro, which surprisingly fell after the European Central Bank (ECB) said it would start its rate-hike campaign next month.

On Thursday, September U.S. Dollar Index futures settled at 102.406, up 0.231 or +0.23%. The Invesco DB US Dollar Index Bullish Fund ETF (UUP) finished at $27.61, up $0.20 or +0.73%.

Cooler Inflation Could Limit Gains

According to Reuters, U.S. core consumer price growth is expected to cool a fraction. Such an outcome would provide some reassurance to those hoping decades-high inflation had peaked in March and that the April pullback was not a one-off.

A slight dip in core inflation could be enough to calm traders’ nerves about the Fed continuing its aggressive rate-hiking ways. But a higher core figure would mean the Fed is going to have to continue to raise rates at a fast pace. This would be bearish for Treasury bonds and bullish for the dollar.

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 103.215 will signal a resumption of the uptrend. A move through 101.445 will change the main trend to down. Taking out 101.170 will reaffirm the downtrend.

The minor trend is also up. A trade 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 closed inside its retracement zone at 102.985 to 103.415.

The minor range is 101.170 to 103.215. Its pivot at 102.190 is the nearest support.

Short-Term Outlook

Trader reaction to 102.985 is likely to determine the direction of the September U.S. Dollar Index early Friday.

A sustained move over 102.985 will indicate the presence of buyers. This could drive the market into 103.415. This price is a potential trigger point for an acceleration to the upside.

A sustained move under 102.985 will signal the presence of sellers. This could lead to a steep break into the pivot at 102.190.

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

This article was originally posted on FX Empire