US Dollar Index (DX) Futures Technical Analysis – Bullish Closing Price Reversal Bottom Sets Up Short-Covering Rally

September U.S. Dollar Index futures recovered on Friday after three days of selling pressure to post a potentially bullish closing price reversal bottom. Profit-taking and position-squaring ahead of the week-end and Tuesday’s U.S. bank holiday were likely behind the price action.

The Greenback was under pressure since Tuesday when European Central Bank President Mario Draghi hinted that the end of stimulus was coming and that the central bank may be ready to join the U.S. Federal Reserve in tightening monetary policy.

Draghi’s comments were followed later in the week by hawkish remarks regarding the direction of interest rates from several central banks including the Bank of Canada, the Bank of England and the Reserve Bank of New Zealand.

Technical Analysis

After drifting lower early in the week, the September U.S. Dollar Index futures contract plunged on Tuesday after Draghi made his hawkish remarks. This was followed by three days of persistent selling pressure that dropped the index to within striking distance of its September 22, 2016 main bottom at 94.97. The index is now trading on the weak side of the “Trump Bottom” at 95.80. This two levels should be considered support and resistance going forward.

Friday’s lower-low, higher-close produced a potentially bullish closing price reversal bottom. This doesn’t mean the trend is getting ready to turn up, but it does put the market in a position to rally 2 to 3 days or as much as 50% of its last sell-off.

A trade through 95.565 will confirm the closing price reversal bottom. A move through 95.474 will negate the chart pattern and signal a resumption of the downtrend.

The new main range is 97.515 to 95.475. Its retracement zone at 96.495 to 96.74 is the primary upside target.