September U.S. Dollar Index futures are spiking to the upside on Wednesday, one day after hitting a multi-month low. The index is picking up most of its strength due to a weaker Euro which represents about 57 percent of the index. The dollar is also recovering against the so-called safe-haven Japanese Yen and Swiss Franc.
The rally initially began on Tuesday as the fears from a North Korean missile launch over Japan subsided. This helped drive up U.S. Treasury yields which made the U.S. Dollar a more attractive investment.
The U.S. Dollar’s rally continued on Wednesday, leading to a spike to the upside on speculation that European Central Bank President Mario Draghi may be feeling a little uneasy about the current value of the Euro. Better-than-expected U.S. economic data also increased the chances for a Fed rate hike later in the year.
According to ADP Corp., the U.S. private sector added 237,000 jobs in August. This was higher than the 185,000 estimate. In other news, the U.S. economy grew faster than initially thought in the second quarter, notching its quickest pace in more than two years. Gross domestic product increased at a 3.0 percent annual rate in the April-June period, according to the Commerce Department. Traders were looking for an increase of 2.7%.
The main trend is down according to the daily swing chart. However, the price action suggests momentum made be getting ready to shift to the upside.
The main range is 94.055 to 91.55. Its retracement zone at 92.80 to 93.10 is the primary upside target. At this time, the index is testing the lower or 50% level. Overtaking this level will shift momentum to the upside.
A downtrending Gann angle also comes in at 92.81, making a resistance cluster at 92.80 to 92.81. Since the main trend is down, we may see sellers come in on a test of this level. However, overtaking 92.81 will indicate the buying is getting stronger. This could trigger an acceleration to the upside with potential targets the Fibonacci level at 93.10, a major 50% level at 93.25 and a downtrending angle at 93.43.
On the downside, there is no real support until 91.55 to 91.45. However, a new short-term range has formed between 91.55 and 92.81. Given this range, if there is a sell-off late in the session, the index could pull back to its retracement zone at 92.18 to 92.03.
We’re going to be watching 92.80 to 92.81 late in the session. A sustained move over 92.81 will signal that the buying is getting stronger. A sustained move under 92.80 could lead to a late session break.