The Dollar Index is staging a potential key reversal. It set a marginal new high for the move and now has reversed low to take out yesterday's low, as this Great Graphic from Bloomberg illustrates. 

We had suggested that the recent advance had left technical indicators stretched. We also observed that despite the talk of monetary policy divergence, US rates had not backed up, as the UK's did. We thought this left the dollar vulnerable.  

The first retracement of the Dollar Index's advance from July 10 comes in near 97.12. Given the light economic calendar and market positioning, we suspect that this first retracement may not be sufficient. The next one is near 96.80, and that seems a more reasonable target.  

The euro's first target is near $1.0965. The 50% retracement comes in just above $1.1010. The $1.08 area is the lower end of the three-month range. Participants need greater incentives to push the euro through there. 

As we have often noted the Dollar Index is heavily weighted toward Europe. The dollar is also staging a potential key reversal against the yen.  The dollar made a new high for the move near JPY124.50 earlier today and now has broken through yesterday's lows (just below JPY124). The risk extends now toward JPY123.25. That is the first retracement objective. Below there, the 50% retracement is found near JPY122.90. 

Sterling, which has been an outperformer as the BOE has sounded hawkish, is paying for it by under-performing. Today is the fourth consecutive session sterling has made lower lows. It is the only major currency not gaining on the dollar today. The euro-sterling cross is bearing the burden. It is up more than 1% today. The GBP0.7045 area is the first euro target, and above there is GBP0.7080.