July 15 (Reuters) - The dollar index looks vulnerable to an especially severe decline. Indeed, if it breaks below its 95.71 June low and then takes out 95.62, which is the 50% Fibo of the 2018-20 88.25-102.99 recovery, prices would be at risk of a much deeper drop, perhaps akin to 2017's dive.
The dollar's been on the back foot since the Fed stepped in to quash a funding squeeze during the March pandemic madness, leaving in its wake just vastly lowered Treasury yields and a bearish divergence between the U.S. and other major economies' pandemic containment outcomes.
With this, the dollar index appears to be resuming its downtrend from its March high which could attract broader selling once the 95.71/62 supports are broken. The initial targets from such a break are the monthly cloud top and 61.8% Fibo of the 2018-20 uptrend at 93.96/88, along with March's spike low at 94.63.
Aside from 2017/20's quasi double-tops and negative divergences, this month's price range, wholly below the monthly tenkan, is a bearish breakdown similar to the summer of 2017. A test of 2017's 88.25 low at the 50% Fibo of the 2011-17 uptrend is a worst-case scenario.
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(Randolph Donney is a Reuters market analyst. The views expressed are his own.)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.