December U.S. Dollar Index futures drifted lower on Tuesday ahead of several key pronouncements from the U.S. Federal Reserve on Wednesday. Policymakers are expected to hold the benchmark interest rate unchanged at 1.25 percent and announce their plan to begin reducing the central bank’s $4.2 billion balance sheet.
The Fed is expected to announce a lowering of monthly bond purchases, starting in October, when their two-day meeting ends on Wednesday. The Fed is also expected to leave the door open for a rate increase at their December 12-13 meeting. At the close on Tuesday, the futures markets implied traders saw a 58 percent chance of a rate increase at year-end, according to the CME FedWatch tool.
The biggest risk for the U.S. Dollar is if the Fed casts doubt on a December rate hike.
Daily Technical Analysis
The main trend is down according to the daily swing chart. Momentum is also trending lower due to the formation of the closing price reversal top at 92.42 on September 14. A trade through this top will negate the chart pattern and shift momentum to the upside.
The minor trend will change to up on a trade through 91.995. A trade through 91.360 will signal a resumption of the down trend.
The main range is 93.84 to 90.795. Its retracement zone is 92.32 to 92.68. This zone is controlling the longer-term trend of the index. It provided resistance last week when the index topped at 92.42.
The short-term range is 90.795 to 92.42. Its retracement zone at 91.61 to 91.42 is controlling the shorter-term trend of the index. It has been providing support the last three sessions.
Aggressive counter-trend buyers are trying to establish a potentially bullish secondary higher bottom on a test of the short-term retracement zone. Bearish investors are trying to drive the index through the zone in an effort to make 92.42 a new main top.
Going into Wednesday’s session, the direction of the index is likely to be determined by trader reaction to 91.61 to 91.42.
This article was originally posted on FX Empire
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