U.S. Dollar Index (DX) Futures Technical Analysis – Price Action Suggests Traders Expecting Hawkish Fed Tone

The U.S. Dollar closed nearly 1% higher against a basket of major currencies on Monday, erasing some of last week’s loss as traders braced for the release of several key economic reports and central bank interest decisions, including the Federal Reserve on Wednesday and the Bank of England on Thursday.

On Monday, the December U.S. Dollar Index futures contract settled at 111.420, up 0.8140 or +0.73%. The Invesco DB US Dollar Index Bullish Fund ETF (UUP) finished at $30.02, up $0.24 or +0.81%.

The key components of the index exerting the most influence were the Euro, down 0.84%, the Sterling which was down 1.30% and the Japanese Yen which lost 0.87%.

The Fed is expected to deliver another 75-basis point rate hike when its policy meeting concludes on Wednesday, which would be its fourth such increase in succession, but market pricing indicates roughly a 50% chance of just 50 basis points at its December meeting.

Despite Monday’s strength, the light volume suggests investors are in wait-and-see mode ahead of the FOMC meeting. The major question is whether the Fed will deliver a more balanced tone or continue its hawkish tightening plan.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum shifted to the upside following a closing price reversal bottom on Oct 27.

A trade through 113.835 will change the main trend to up. A move through 109.365 will negate the closing price reversal bottom and signal a resumption of the downtrend.

On the downside, the support is an intermediate retracement zone at 110.237 to 109.448. On the Upside, the nearest resistance is the short-term retracement zone at 112.055 to 112.690.

Daily Swing Chart Technical Forecast

Trader reaction to the short-term 50% level at 111.098 will determine the direction of the December U.S. Dollar Index early Tuesday.

Bullish Scenario

A sustained move over 111.098 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into 112.055, followed by 112.690.

Bearish Scenario

A sustained move under 111.098 will signal the presence of sellers. If this move generates enough downside momentum then look for the selling to possibly extend into the Fibonacci level at 110.237.