US Dollar Index Trying to Form Closing Price Reversal Bottom

The U.S. Dollar bounced from a two-week low against a basket of major currencies on Friday following a surge in U.S. Treasury yields. The catalyst behind the greenback’s rebound was a jump in the number of U.S. jobs created in January. Nonetheless, the dollar was still down a little less than 2% for the week, its biggest weekly percentage loss since November 2020.

At 21:07 GMT, March U.S. Dollar Index futures are trading 95.410, up 0.031 or +0.03%. The Invesco DB US Dollar Index Bullish Fund ETF (UUP) is at $25.55, down $0.01 or -0.06%.

The dollar rose and Treasury yields soared as investors reacted to a surprisingly strong January jobs report.

The yield on the benchmark 10-year Treasury note rose by 9 basis points to 1.918%. Earlier in the day, it hit its highest level since December 2019. The yield on the 30-year Treasury bond climbed 7 basis points to reach 2.223%.

The Labor Department said Friday that the economy added 476,000 jobs in January. Economists surveyed by Dow Jones expected an addition of just 150,000 jobs, with some Wall Street pros projecting net job losses for the month due to the omicron variant surge.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum is trending lower.

A trade through 94.610 will change the main trend to down. A move through 97.440 will signal a resumption of the uptrend.

The minor trend is down. This is controlling the momentum.

The main range is 93.200 to 97.440. Its retracement zone at 95.320 to 94.820 was tested successfully on Friday at 95.145.

The short-term range is 97.440 to 95.145. Its retracement zone at 96.295 to 96.565 is the nearest upside target.

Short-Term Outlook

The technical bounce following the test of the 95.320 to 94.820 retracement zone was impressive enough to turn the March U.S. Dollar Index higher. A close over 95.380 will form a potentially bullish closing price reversal bottom. If this chart pattern is confirmed then we could see the start of a 2 to 3 rally with 96.295 – 96.565 the next likely target area.

If 95.145 fails as support then look for the selling to extend into 94.820. Taking out this level will lead to a test of 94.610.

The main trend will change to down on a trade through 94.610. This could also trigger an acceleration to the downside.