With U.S. markets closed for a holiday, volume is down in the Forex markets, pressuring the March U.S. Dollar Index. Traders are paring their long U.S. Dollar positions ahead of an anticipated quiet trading day.
The Japanese Yen is trading stronger against the U.S. Dollar. With the start of a two-day BOJ policy meeting, traders are positioning themselves for either aggressive action from the central bank or another disappointment. Oversold conditions are leading to a stronger British Pound. Markets that reversed course to the downside last week like the Euro and Australian Dollar are also showing signs of strength today. All of this action is leading to a weaker dollar.
Investors still aren’t sure whether a compromise over the debt ceiling will be bullish or bearish for the dollar. Some feel that it will lead to a stronger economy which will be bullish. Others feel that it will strip out some of the uncertainty in the markets, leading to greater demand for higher risk assets.
Based on the main range of 80.99 to 79.40, a major retracement zone was created at 80.20 to 80.39. This zone was tested on Friday when the market reached 80.27. This morning’s weakness was probably triggered by technical selling inside of this zone. Downtrending resistance is at 80.31.
A new short-term range is forming between 79.40 and 80.27. This makes 79.84 to 79.74 a potential downside target. Currently the market is straddling an uptrending Gann angle at 80.03. A failure to hold this angle should set up an eventual break to a slower-moving Gann angle at 79.72. This angle could be tested within the next 2 days as it crosses the retracement zone.