The US dollar's run stopped last week, but not before new highs were recorded against the euro, sterling, and the yen.   By the end of the week, the euro had risen 1.4%, sterling 0.9%, and the yen had risen as much as the two of them put together.  It was the biggest weekly gain for the yen in 16-months.  

There is one pressing question that international investors will be mulling this weekend:  How far and how long is the dollar's correction?   

Technically, the dollar has had a strong bull run that has been sustained for several months, and the pullback, thus far, has been quite modest in terms of retracement objectives.  While that could speak to the dollar's resilience, it may mean that the correction has more room to run. Market positioning is still very extended, and the technical indicators are consistent with additional near-term dollar losses.  

This might not do sufficient justice to market sentiment.  Investors have a high conviction that diverging growth and monetary policies favor the dollar in a way that has not been experienced in many years.  This point will likely be driven home next week as the federal reserve continues to prepare the market for a rate hike around the middle of 2015.   

The Federal Reserve will acknowledge that lower oil prices can feed through to inflation and inflation expectations, but this is a short-run impact.  It will look past it and focus on the more important and lasting stimulative effect on aggregate demand.   Ironically, the Fed's dual mandate and focus on core inflation appears to give it greater degrees of freedom than the ECB or BOJ enjoy. 

Still, the price action needs to be respected.  Tactically, we want to look for potential inflection points.  That is to ask, what chart points could signal a deeper or acceleration in the correction.  Our working hypothesis is that the dollar is retracing the move that began on October 15.