The dollar index was always going to have a tough time on Tuesday after Japanese officials were out early expressing support for the EMU and euro, indicating they still have a healthy appetite for euro-region debt. This also came after several days of heavy pressure on the euro and there was some need to alleviate some downward pressure. As such, the index lost ground steadily throughout the day, rising global equities added another weight for the buck to contend with. In recent trade the buck has pared some of its decline as investors eye upcoming European debt auctions, specifically Portugal’s 2014 and 2020 bonds up today.
Yesterday’s declines and this morning’s early dip lower could be the beginnings of a double-top forming in the index. While it is certainly too early to call such a pattern at this point we will be watching how price-action plays out over the rest of the day and tomorrow. The forming of a double-top would indicate the index should return to test neckline support at 79.00, a break of this support level opens up much steeper losses toward the 76.00 region. However, a break and close above 81.50 negates this pattern and will open up further gains.