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    Dollar Index: buck caught by a bat

    The dollar has shown some strength in the past couple of hours or so despite the release of some weaker-than-expected US data. Although housing starts rose slightly last month, the 3.3 per cent increase was significantly lower than the rise of 15 per cent expected. Building permits meanwhile fell almost 5.5 per cent in March, which does not bode well for future construction. On top of this, unemployment claims surged by 13 thousand applications last week when only a rise of 3 thousand was expected. Most of the other US macro pointers released earlier this week also missed expectations. Yet despite all these soft numbers, the dollar has bounced off its lows and as a result some of the major currency pairs such as the EUR/USD and GBP/USD are drifting south as I go to press. The buck-denominated gold and silver prices have meanwhile turned lower.

    So why has the dollar strengthened in the face of weaker than expected US data? Well, to some degree it is because of a technical bounce.  As can be seen on the 1-hour chart of the Dollar Index, below, there is an almost perfect Gartley pattern in the making around 97.90/95. This is where the point D of an AB=CD pattern converges with two Fibonacci levels: the 61.8% retracement of the XA move and the 161.8% extension of the BC swing. Technically this is actually not an exact Gartley pattern as point B is less than the desired 61.8% retracement. This pattern is actually called a bat. However the name or measurement is not important as both are closely-watched harmonic patterns and are among our favourite ways of using Fibonacci-only analysis. But like any other technical indicators these harmonic patterns are not always reliable. Nevertheless the market is clearly showing it some respect, at least for the time being anyway, and so we thought we should highlight this fact.

    From here, the dollar could stage at least a minor bounce, perhaps towards the 38.2% retracement of the AD swing at 98.80 (not drawn on the chart). Further resistance is seen around 98.90 then at 99.35 (61.8% Fibonacci level) and followed by the psychological 100 level.  If however the Dollar Index breaks the abovementioned 97.90/95 Fibonacci support then we could see a continuation of the sell-off towards the next set of Fibonacci levels at 97.30 (78.6% retracement of XA) or 96.95 (261.8% extension of BC) before it makes its next move.

    Figure 1:


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