The end of the US dollar’s downside correction, which we see having begun in mid-December, following the Fed hike rather than the start of the New Year, is proving more elusive than we anticipated. Our reading of the technical condition and the weak close before the weekend warns of the downside risks.

The verbal intervention by the new US Administration and the unexpected weakness in wage growth may be factors extending the correction. Nevertheless, we continue to view the dollar’s pullback as corrective in nature and not the end of the bull run, and still see the macroeconomic considerations falling into place for a resumption of the underlying bull market.

Following the US January jobs report, the odds of a rate hike in March fell. According to Bloomberg’s calculations, the odds of a March hike fell to 24% from 32%. Our own calculation was closer to the CME’s estimate of almost 18% before the employment data and 9% afterward. Both Bloomberg and the CME estimate the probability of that the Fed funds target is 75-100 bp by the end of June edged higher. For Bloomberg, the odds increased to 71% from 68% and for the CME 49.3% from 48.1%.

The Dollar Index has yet to sustain upticks. The recovery after new lows since mid-November were recorded on February 2 was constructive, but the pre-weekend price action neutralized it. There is a band of mild support seen between 99.20 and 99.40. We note that last week, the Dollar Index met the 38.2% retracement of the gains since last year’s lows set in May (~99.25). Stronger support is seen near 98.95, and a break of it could signal a move toward 98.00. (~97.85 is the 50% retracement of the rally since last May). On the upside, a move through the pre-weekend high near 100.25 would be a favorable sign.

The euro flirted with the 100-day moving average (~1.0790) and the 50% retracement of the losses since the US election (~$1.0820) and a 38.2% retracement of the euro’s slide since last year’s high (~$1.1615). Medium-investors seemed to see it as a reasonable selling opportunity. The 61.8% retracement of the post-election more is near $1.0935, and $1.0980 is the 50% retracement of the larger move. The Slow Stochastics have turned lower, but the MACDs have yet to cross. The RSI did not confirm the new high last week, but the RSI is flat a little below 60.