After early session strength, the March U.S. Dollar Index is trading weaker. The dollar is taking heat this morning in a delayed reaction to yesterday’s dovish Federal Reserve Beige Book. In addition, the overnight strength in the Euro, triggered by a drop in Spain’s borrowing costs is also contributing to the dollar’s weakness.
A dollar is also weakening against the British Pound which is rebounding following a four day setback. Supporting the dollar this morning is a weaker Australian Dollar and Japanese Yen. The Aussie weakened on an unexpected drop in employment while the dollar is shaking off the recent sell-off against the Yen.
The mixed currency moves leads me to believe that we could be looking at a choppy, two-sided trade today unless the Euro challenges the high this week at 1.3403. If this occurs, the Dollar Index is likely to weaken throughout the session.
Technically, the March U.S. Dollar Index ran into resistance at the high for the week at 79.95. In addition, a downtrending Gann angle from the 80.99 top may have contributed to the sell-off when the market failed to breakout over 79.87. This price could become resistance later in the session.
The failure to hold an uptrending Gann angle at 79.78 also contributed to an acceleration to the downside overnight. This sets up the possibility of a further decline into 79.59.
Based on the short-term range of 79.40 to 79.95, a retracement zone was formed at 79.68 to 79.61. The market is currently testing this area. A possible support cluster has formed at 79.61 to 79.59. A test of this area could trigger a technical bounce.
Traders should pay close attention to the activity inside 79.68 to 79.61. It is possible that traders are trying to establish a secondary higher-bottom inside this zone. This will be a strong sign that the sentiment is starting to shift to the upside.