Dollar Index Moves Back Above Long-Term Fibonacci Resistance

The U.S. Dollar is trading higher against a basket of major currencies on Friday, boosted by a plunge in the Japanese Yen and a weaker Euro. A sharp rise in U.S. consumer inflation also cemented expectations that the U.S. Federal Reserve would hike key interest rates at the conclusion of next week’s monetary policy meeting to prevent the economy from overheating. This helped boost the greenback’s appeal as an investment.

At 09:34 GMT, June U.S. Dollar Index futures are trading 98.770, up 0.213 or +0.22%. On Thursday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $26.38, up $0.14 or +0.51%.

The dollar hit a new five-year top against the Japanese Yen on Friday after a strong U.S. inflation report, while the Euro struggled to hold its own as a hawkish turn from the European Central Bank was offset by growth risks emanating from the Ukraine crisis.

Meanwhile, both the Federal Reserve and the Bank of Japan have policy meetings next week, but while the Fed is all but certain to hike rates from their pandemic low, the BOJ is set to remain an outlier and hold onto a dovish stance on monetary policy, weighing on the Yen.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum has been trending lower since the formation of the closing price reversal top on March 8.

A trade through 95.085 will change the main trend to down. A move through 99.470 will negate the closing price reversal top and signal a resumption of the uptrend.

The minor trend is also up. A trade through 97.785 will change the minor trend to down. This will confirm the shift in momentum.

The minor range is 99.470 to 97.785. The index is currently trading on the strong side of its pivot at 98.630, making it support.

The market is also trading on the strong side of a long-term retracement zone at 98.200 to 96.720, putting it in a bullish position and making this area support.

In the long-term retracement zone is a 50% level at 97.280. This is also support.

Daily Swing Chart Technical Forecast

The direction of the June U.S. Dollar Index on Friday is likely to be determined by trader reaction to 98.630.

Bullish Scenario

A sustained move over 98.630 will indicate the presence of buyers. If this move generates enough upside momentum then look for the rally to continue into the main top at 99.470.

Sellers could come in on the first test of 99.470, however, this level is also the trigger point for an acceleration to the upside with 100.560 to 100.930 the next potential target.

Bearish Scenario

A sustained move under 98.630 will signal the presence of sellers. This could trigger a quick break into the long-term Fibonacci level at 98.200.

A failure to hold 98.200 will be a sign of weakness. This could lead to a test of the minor bottom at 97.785. Taking out this level will indicate the selling pressure is getting stronger with 97.280 and 96.720 the next likely target levels.