Last week we took a close look at the U.S. Dollar Index, noting the importance of the 100.60 area. We warned that a break of that support could signal the start of a deeper correction as opposed to a shallow consolidation. Two targets were offered -- 99.70 and 99.00.
Before the weekend, the USD briefly slipped through the support before closing above it. However by Monday, the Dollar Index posted a large outside down day. Initially the dollar rose through the pre-weekend highs, subsequently pushing recent lows and, just ahead of the U.S. close, it looked likely to finish below the pre-weekend low of 100.62. 
The technical condition has deteriorated. The RSI, MACDs and Slow Stochastics have all turned down. The Dollar Index has been sold through the 20-day moving average for the first time since the U.S. election. The five-day average is poised to move below the 20-day average for the first time in almost a month.
As this Great Graphic shows, the Dollar Index is flirting with the upper end of the old trend channel. The top comes in near 100.00. The 99.70 level corresponds to a 38.2% retracement of the post-election rally. The dollar was as low as 99.85 on Monday.
At this juncture, it seems likely that a deeper correction is coming. The 99.00 area corresponds to the 50% retracement of the post-election rally. It is also the minimum measuring objective of the potential head-and-shoulder topping pattern. The head was formed near 102.00 between November 22-25. The neckline was 100.65. Rotating the pattern over it neckline would take it to 99.35. Also, the high from the second half of October is found a little above 99.00 as well.
For the record, the 6.18% retracement of the post-election rally is found near 98.25. On November 9, the day after the U.S. election, the Dollar Index closed near 98.50.
The correction we envision for the Dollar Index is likely to coincide with a correction in rates. We note that the 10-year yield is already about 10 bp below last week's high. The technical indicators for the 10-year Treasury note futures suggest more upside potential (lower yields). The U.S. premium over Germany on the two-year recorded a multi-year high near 188 bp on December 1. The premium now is 181 bp and is heavy. We see potential toward 170-175 bp.