Often the US dollar, as the numeraire, seems to be the main actor in the foreign exchange market. Other times, the dollar appears to be at the fulcrum between European currencies on one hand, and the dollar-bloc currencies on the other hand. Another way expressing this is whether there is a dollar-move underway or is it really more about the crosses.

Presently, the dollar appears better understood at the fulcrum. Last week it fell against European currencies and advanced against the dollar bloc and yen. While this may continue, we suspect robust US data (April auto sales and employment) could spur a return of the dollar as the primary mover. If this scenario does materialize, the recent weakness of the Australian and Canadian dollars may be seen as leading the move.

The Dollar Index gapped lower to start the week and chopped back and forward between around 98.70 and 99.30. The gap is unfilled. It is found between 99.33 and 99.65. The important technical question is what kind of gap is it? Some technicians are arguing that it is a break away gap or a measuring gap, which would be a bearish read. If it is a normal gap, it should be filled shortly. The MACDs and Slow Stochastics appear poised to turn higher, and given our fundamental outlook, we lean toward the gap being filled over the next week or so. If our leaning is wrong, the next downside target would be near 97.85, the 50% retracement of the rally since last May. The 38.2% retracement is (wouldn’t you know it?) near 99.30.

The euro, which is the biggest component of the Dollar Index, has seen similar action. It gapped higher in response to the French election. It is a large gap between $1.0738 and $1.0821. The gap takes on additional technical significance because it is on the weekly charts as well as the dailies. The euro’s gains were extended into an important technical area. The $1.0935 area corresponds to a 61.8% retracement of the euro’s losses since the US election, while the $1.0980 area is the 50% retracement of the euro’s down leg that began nearly a year ago. The 61.8% retracement is near $1.1130, which is around where the euro was trading before the election spike. It is also near the objective if the gap is a measuring gap and appears around the half way point of a move.