It seems as though the Federal Reserve once again is taking aim squarely at the US Dollar Index with talk of ‘likely’ (or possible) injections of liquidity into the economy in the form of a second major Quantitative Easing plan should the economy falter.

While QE may indeed help stocks and the general economy – should it come to that – the major casualty of a new round of easy monetary policy will likely be the US Dollar – weakened by the injection of liquidity.

That being said, let’s take a quick look at the critically important weekly technical (chart) level to watch in the US Dollar Index, as it reflects confluence support. Any further breakdown under this support would trigger a major chart sell signal.

Let’s see it on the Weekly Frame:

Click on image to enlarge!

From a chart perspective, the level to watch is abundantly clear. It’s roughly the $80.00 index level as seen above.

First, “Round Numbers” often provide their own support or resistance, and serve as a pure price level to watch.

Second, the 200 week Simple Moving Average rests currently at $80.04 – it’s a level that has been important in the past, halting the earlier decline in August.

Finally, the 61.8% Fibonacci Retracement as drawn (from the November 2009 low to the 2010 high) rests at $79.75.

These three chart levels align at the $80 level to form an important confluence support… and thus turning point in the market.

Should the Dollar continue its decline through this confluence support, then that would set-up a potential longer-term target for a move back down to the $74 level seen in late 2009.

Should the Federal Reserve actually go through with its plan to “help the economy in any way possible,” then we can anticipate a move that could take us down to that level.

What seems to be happening now is market expectations of action, rather than actions themselves, but whatever the case, participants in the Dollar will need to watch the $80 level extremely closely.

A break under that level could be quite significant.

For more daily updates from Corey, visit his blog at Afraid to Trade.com