The US dollar index as expected made a steep decline yesterday following the remarks and policy announcement of ECB President Mario Draghi. The EUR/USD pair is the main component of the index, and the rally in that pair of more than 300 pips is likely to apply big pressure on the US dollar index.

Blue lines - bearish wedge (broken)

As I have pointed out several times over the last few days, the US dollar index was inside a bearish wedge and it is expected to break downwards soon. Bulls should have raised their stops. Yesterday, I also said that at current levels the risk reward for being long on the USDX is not good for bulls.

The US dollar index got rejected at the previous high and resistance as expected. The stochastic oscillator was overbought both in the short- and long-term charts. The price has already reached the 38% Fibonacci retracement and has started a bounce. I do not believe the downward correction is over and we should expect more downside. Stops for short positions should be placed at recent highs, because if we now reach a new high, a target is seen at 104-105.