US Dollar Index (DX) Futures Analysis – April 25, 2013

A soaring British Pound and a stable Japanese Yen helped to drive the June U.S. Dollar Index lower overnight. Since the market formed a technical closing price reversal top on Wednesday, there should be a bearish bias on the market all session.

A strong rally in the British Pound helped drive the dollar index lower after the latest reading on economic growth showed the country avoided slipping into a triple-dip recession in the first quarter. A report from the U.K. Office for National Statistics showed the economy expanded by 0.3% in the first quarter, exceeding expectations of a 0.1% improvement. The surprise expansion meant the U.K. economy missed falling into a recession for the third time in five years.

Since topping at 1.5411 on April 11, the U.S. Dollar had posted a gain against the Sterling on the notion that a weakening economy would lead to the implementation of additional stimulus by the Bank of England. Speculators took the market down to 1.5196 by April 23 based on this event. The overnight move drove the GBP/USD into a major Fibonacci level at 1.5457.

A stable Japanese Yen also helped pressure the U.S. Dollar. This USD/JPY has been hovering near the psychological 100.00 level for four days as traders took to the sidelines ahead of this Friday’s Bank of Japan policy decision.  

Technically, the June U.S. Dollar Index formed a closing price reversal top on Wednesday. This chart pattern often indicates the start of a 2 to 3 day break equal to at least 50% of the last rally. Based on the range of 81.78 to 83.32, the market completed the retracement when it tested the 50% level at 82.55. If downside momentum takes the market through this level then look for a test of the Fibonacci level at 82.37.

Short-term oversold conditions could trigger a technical bounce following the test of 82.55. The market may even gain intraday strength if it crosses over to the bullish side of an uptrending Gann angle at 82.66. Additionally, a move to the bullish side of a downtrending Gann angle at 82.72 could also trigger some intraday short-covering.