•    USDX plummets after softer-than-expected CPI on Tuesday

•    Hits a fresh 2-month low before forming a new sideways pattern

•    Momentum indicators close to oversold conditions

The US dollar index (December Futures) fell sharply on the back of disappointing inflation data in the US, breaking below its recent range defined by the 50.0% and 38.2% Fibonacci retracements of the 114.71-99.19 downleg. However, traders should not rule out a bounce as the short-term oscillators are hinting at oversold conditions.

Should the bears attempt to push the price lower, immediate support could be found at the two-month bottom of 103.79. Dipping below that level, the index could descend towards the 23.6% Fibo of 102.85. Further retreats could then cease at the April bottom of 100.44.

Alternatively, if bearish pressures wane and the price reverses higher, the bulls could attack the November support of 104.65, which also acted as resistance in May. Failing to halt there, the price might attempt to re-enter its recent range by conquering the 38.2% Fibo of 105.12. A violation of that region could set the stage for the 50.0% Fibo of 106.95.

In brief, the dollar index spiked downwards on Tuesday, breaking profoundly below its two-month sideways pattern. However, the bulls might quickly strike back as the momentum indicators suggest that the recent decline is starting to look overstretched.