The US dollar had a difficult week.  The price action after the ECB meeting had undermined the technical tone, and the dollar took another leg down after the FOMC moved closer to the market expectation by reducing the number of rate hikes the median official thinks will be appropriate this year from four to two. 

The US Dollar Index fell for the third consecutive week and the fifth week of the past seven. The minor gains ahead of the weekend failed to improve the technical tone. Technical indicators warn of additional losses. However, the market is stretched. It posted two closes to finish the week below the lower Bollinger Band.   

The Dollar Index reached a low near 95.50 in the immediate response to the FOMC statement and new dot plot.  This now denotes initial resistance. A move above 96.00-96.20 is needed to suggest a bottom is in place. On the downside the 94.00 and the October 2015 low near 93.80 the next downside targets.

After the euro rally that began in the middle of Draghi’s post-ECB press conference, we cautioned that provided the $1.1040-$1.1060 breakout area held, the euro could rally to $1.13, based on our technical work. The euro reached a high near $1.1340 on March 17. Above here is the February high at $1.1375 and the mid-October 2015 high just shy of $1.1500. 

The euro has bounced more than a nickel off the pre-ECB lows, and although it appears stretched, the RSI and MACDs are not signaling that a top is in place.A break of the $1.1200-$1.1235 area may be the first technical sign that the advance is tiring.A move below $1.1150 would be a more convincing sign that a top is in place.  

The dollar slipped to marginal new lows since Q4 14 last week, a little below JPY110.70. The risk is on the downside unless the JPY112 area is resurfaced. Participants know that yen strength causes the BOJ discomfort, and continue to probe for its pain threshold. The balance between fear and greed may shift toward the former as the JPY110 area is approached. Yen strength risks lower import prices with knock-on effects on consumer prices. Seasonally, there is risk of repatriation ahead of the end of the fiscal year. The stronger the yen, the more likely the BOJ eases policy next month.