FX Empire

US Dollar Index (DX) Futures Technical Analysis – Reversal Bottom Indicates Position-Squaring Ahead of Fed

James Hyerczyk
Updated

Position-squaring ahead of the start of the Federal Reserve’s two-day meeting on Tuesday helped September U.S. Dollar Index futures recover enough on Monday to produce a potentially bullish closing price reversal bottom.

The chart pattern doesn’t mean the trend is getting ready to change to up, but it could be an indication that the selling is greater-than-the-buying at current price levels.

The Fed is widely expected to keep interest rates unchanged, having hiked in their previous meeting in June. According to the CME Group’s FedWatch tool, market expectations for a rate hike were just 3.1 percent as of Monday’s close.

U.S. Dollar Index
Daily September U.S. Dollar Index

Technically, the market hit a low of 93.65 on Monday. This was slightly above the August 18, 2016 main bottom at 93.58. Enough buyers came in to produce a closing price reversal bottom. The reversal bottom may have been fueled by a combination of profit-taking, short-covering and aggressive counter-trend buying.

The index also closed on the strong side of a steep downtrending angle at 93.71. This is another sign of position-squaring.

Due to the recent steep sell-off, the daily chart indicates there is room to the upside, but there has to be surprise news and a serious change in the fundamentals to shift momentum to the upside.

Early Tuesday, investors should pay close attention to the price action and order flow on a test of yesterday’s high at 93.945. A trade through this level will confirm the closing price reversal bottom. This could lead to a 2 to 3 day retracement. A trade through 93.65 will negate the chart pattern and signal a resumption of the downtrend.

This article was originally posted on FX Empire

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