Every where I see people looking for a market bounce, while evidence may support a very small one, keep in mind that the dollar did not even take out Thursday's high on Friday while equities got pummeled. From what I see, a pullback in the dollar has maximum potential of around 75.90. That is the dashed support line on the chart below. If the dollar were to take out that level, it would likely be taking out swing lows from the left shoulder and that would be a SIGNIFICANT compromise to the technical picture.
What seems most likely to me is that the dollar makes a small pullback above this support and then breaks out or simply gaps up over resistance at the thick green line. This of course would likely support a market that would cascade lower to the 1016 to 1020 area at least, probably more prior to a good bounce. If we look at the downside risk for the dollar its so minimal that any market rally would have to be rather restrained at best. Again, if the dollar were to take out 75.90 then something else would be playing out.
The thick green trend line immediately above for the dollar is a significant resistance, but the pattern is strong and looks like it is demanding follow through and then consolidation. A breakout of this trend line will cause an avalanche of dollar shorts to cover... potentially in explosive fashion.
Looking at past action in the dollar, pullbacks during the first short squeeze higher are extremely small and more likely gap ups. I will post some examples shortly.
Please click on chart for a sharper view.
