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U.S. Dollar Index Futures (DX) Technical Analysis – Heightened Volatility with Whipsaw Action Expected

James Hyerczyk

The U.S. Dollar is trading firm against a basket of currencies early Wednesday, well ahead of the release of the Federal Reserve’s interest rate and monetary policy decisions at 18:00 GMT. The Greenback is posting gains against all major currencies in the index including the Euro and British Pound. The oil-related Canadian Dollar is also under pressure as well as the safe-haven Japanese Yen and Swiss Franc.

At 08:00 GMT, December U.S. Dollar Index futures are trading 97.925, up 0.106 or +0.11%.

Traders have been pricing in a 25-basis point rate cut by the Federal Reserve for weeks, therefore, the focus will be on how much more easing policymakers signal for this year and next.

Some analysts are claiming the market is short the dollar. If so then any hint of hawkishness from the Fed could trigger a huge rally in the U.S. Dollar Index.

Late Tuesday, the CME’s U.S. Federal Funds futures indicator showed about a 51% chance that the Fed will cut 25 basis points on Wednesday, this is well off its recent high and well below market expectations. This is why dollar investors are cautious ahead of the Fed meeting.

Daily December U.S. Dollar Index

Daily Technical Analysis

The main trend is down according to the daily swing chart. A trade through 97.560 will signal a resumption of the downtrend. A move through 98.670 will change the main trend to up.

The short-term range is 98.670 to 97.560. Its 50% level or pivot at 98.115 is controlling the near-term direction of the index

The main range is 94.975 to 98.900. Its retracement zone at 96.940 to 96.475 is the primary downside target.

Daily Technical Forecast

The direction of the December U.S. Dollar Index on Wednesday is likely to be determined by trader reaction to the short-term pivot at 98.115.

Bullish Scenario

A sustained move over 98.115 will indicate the presence of buyers. Taking out yesterday’s high at 98.290 will indicate the buying is getting stronger. If this creates enough upside momentum then look for a labored rally with potential resistance at 98.475, 98.605 and 98.665.

Overtaking the uptrending Gann angle at 98.665 could trigger a further rally into the main top at 98.670. This is a potential trigger point for an acceleration into the next main top at 98.900.

Bearish Scenario

A sustained move under 98.115 will signal the presence of sellers. The first downside target is the main bottom at 97.560, followed closely by the uptrending Gann angle at 97.540.

Taking out 97.540 could trigger an acceleration into another main bottom at 96.600, followed by the main 50% level at 96.940.

Overview

Watch for whipsaw price action because there are two key pieces to today’s Fed announcements. The first is the rate decision. The second is the policy statement with should offer clues about future rate moves.

This article was originally posted on FX Empire

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