September U.S. Dollar Index futures finished the week only slightly higher despite rising U.S. Treasury yields. The reason for this is because the index is geometrically weighted and the strength in the Euro outweighed the strength in the U.S. Dollar against other currencies like the Japanese Yen, Australian Dollar and New Zealand Dollar.
However, you should notice that the U.S. Dollar lost ground against the three currencies highlighted by hawkish talk from their central bank officials the previous week. These include the Euro, British Pound and Canadian Dollar.
Helping to boost the U.S. Dollar last week were somewhat-hawkish minutes from the Fed’s June monetary policy meeting and Friday’s better-than-expected U.S. Non-Farm Payrolls report.
Despite the higher close, gains in the index could continue to be limited by stronger performances by the Euro, Canadian Dollar and British Pound.
Technical Analysis
The main trend is down according to the daily swing chart. A trade through 95.225 will signal a resumption of the downtrend. The trend will change to up on a trade through 97.515.
The short-term range is 97.515 to 95.225. Its 50% level or pivot is 96.37. The bias will continue to be to the downside as long as the index remains below the pivot. Crossing to the strong side of the pivot will breathe some life into the index.
Forecast
The direction of the index this week will be determined by trader reaction to the low at 95.225 and the weekly pivot at 96.37.
Holding above 95.225 and below 96.37 will produce a rangebound trade.
Taking out 96.37 will shift the momentum to the upside with the first target a pair of downtrending angles at 96.77 and 96.85.
If buyers can take out 96.85 with conviction then don’t be surprised by a breakout into a pair of downtrending angles at 97.26 and 97.32. This is followed by the main top at 97.515.
If the selling is strong enough to take out 95.225 then look for the sell-off to extend into the September 23, 2016 main bottom at 94.97. Look for an acceleration to the downside if this level fails as support.
Keep in mind that the index is highly correlated to the Euro.
This article was originally posted on FX Empire