Dollar Index Strengthens Over 98.595, Weakens Under 98.200

The U.S. Dollar is edging higher against a basket of major currencies early Tuesday, following through to the upside after a strong performance the previous session. The catalysts behind the price surge are comments from U.S. Federal Reserve Chair Jerome Powell that opened the door for central bank policymakers to take a more aggressive monetary policy path.

At 03:31 GMT, June U.S. Dollar Index futures are trading 98.635, up 0.136 or +0.14%. On Monday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $26.34, up $0.09 or +0.34%.

While Powell’s comments are being identified as the catalysts, it was the jump in U.S. Treasury yields that made the U.S. Dollar a more attractive asset. The yield on the benchmark 10-year Treasury note rose 15.4 basis points to 2.302% after Federal Reserve chief Jerome Powell warned about rampant inflation.

Powell on Monday promised to take tough action on inflation, which he said jeopardizes an otherwise strong economic recovery. Powell also noted rate hikes could go from the traditional quarter-percentage-point moves to more aggressive half-basis-point increases if necessary.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 99.300 will change the main trend to up. A move through 97.715 will signal a resumption of the downtrend.

The first minor range is 99.47 to 97.715. The index is currently straddling its pivot at 98.595.

The main retracement zone support is 98.200 to 96.720. Inside this area is another pivot at 97.280. The market is trading on the strong side of this levels, making them support.

Daily Swing Chart Technical Forecast

The direction of the June U.S. Dollar Index on Tuesday is likely to be determined by trader reaction to the pivot at 98.595.

Bullish Scenario

A sustained move over 98.595 will indicate the presence of buyers. If this move generates enough upside momentum then look for a surge into the main top at 99.300. Taking out this level will indicate the buying is getting stronger with another main top at 99.470 the next target.

A trade through 99.470 could trigger an acceleration to the upside with a long-term resistance cluster at 100.560 to 100.930 the next major target area.

Bearish Scenario

A sustained move under 98.590 will signal the presence of sellers. The first target is the long-term Fibonacci level at 98.200. Crossing to the weak side of this level could trigger a further break into the main bottom at 97.715.

A failure to hold 97.715 will indicate the trend is weakening. This could trigger further breaks into 50% levels at 97.280 and 96.720.