A quick overview of the dollar in the hours leading up to the FOMC announcement at 2pm this afternoon…

DX has declined from 84.595 to this morning’s low of 80.64 in a well-defined channel dating back to the May 22 S&P high of 1687 — which means it was positively correlated for the 1687 to 1598 drop, but has reverted to a more typical negative correlation since then.

This explains the recent stall at the bottom of the purple channel, seen better on the 4-hr chart below.

Does it mean the downside has completely run its course?

continued for members…

Note that DX has retraced a Fibonacci .707 of its rise from 78.915 to 84.595.  It has also come quite close to the bottom of the red channel rising from the May 2011 lows (a statement in itself.)

In other words, it has ample support at its present level.  If equities like what Bernanke has to say an hour from now, DX could dip to the purple .786 at 80.131.  If equities love what he says, the .886 at 79.563 is a reasonable target — especially intraday.

Any breach of 78.725 should be viewed as a very bullish (for equities) sign.

More later.