Despite a Forex trading session that has multiple foreign currencies trading lower versus the dollar, the March U.S. Dollar Index is trading lower. The sharp rise in the Euro appears to be strong enough to offset the moves in the other markets.
The EUR/USD surged to the upside after a stronger-than-expected rise in the Ifo German business-climate index and positive comments by European Central Bank President Mario Draghi in Davos, Switzerland. Draghi set off a sharp rally after stating at the World Economic Forum’s annual meeting that 2012 had effectively marked the re-launching of the Euro. He also added that although financial stresses had eased, the economy continues to lag.
His comments were enough to trigger a breakout over a pair of tops at 1.3397 and 1.3403. The acceleration to the upside has put the Euro in a position to test a major 50% price level at 1.3491. The strength of the Euro has been enough to drive the U.S. Dollar into a short-term retracement zone, but momentum is strong enough to anticipate a further decline. Higher intra-day highs in the Euro combined with reversals in the currently lower currencies could trigger a rapid break in the dollar.
Technically, the March U.S. Dollar Index found resistance on a downtrending Gann angle at 80.12. This is the second consecutive day that this angle stopped the index. Later in the session an uptrending angle that had provided support for seven days also failed. This angle is at 79.90. Breaking this angle sets up a possible move to 79.65.
The main trend is down. The short-term range is 79.40 to 80.27. This range has created a retracement zone at 79.84 to 79.74. The market is currently testing this zone. It is possible that buyers may try to defend the market inside of this zone. This may trigger a few intraday short-covering rallies, but overall there is a growing bias to the downside.