Foreign exchange traders may want to pay closer attention to the glaring gap in their dollar charts because it could be another reason to extend recent U.S. election-related gains.

It’s rare for highly liquid financial markets like currencies to have spaces -- or gaps -- where no trading has seemingly occurred, but there's one on the dollar index that's beckoning price action.

In technical analysis, such market chasms are imperfections that need be corrected to ensure that all available information is accounted for in the price.

But almost exactly a year ago, the dollar index slumped in the aftermath of a November Fed policy meeting, creating such a price gap.

At the time, Fed Chair Jerome Powell said, with the fed funds ceiling at 22-year high of 5.5%, that the risks of doing too much or too little were now balanced. Two days later, the dollar slumped to a six-week low after the October employment report showed the world's largest economy created fewer jobs than expected.

This gap after Powell’s remarks was created at the close of business on Nov. 1, 2023. The index opened the following day beneath the prior day’s low of 106.612 and has yet to fully recover.

In order to correct this information and pricing anomaly, the dollar index must rise to “fill the gap” before it can move freely in either direction. Its surge after the U.S. election is a step in that direction, reversing a minor bearish trend.

Until it spackles that post-Powell void, losses will be constrained.

This is not the first currency-related gap to occur over the past several decades. In April 2017, the euro formed a gap between 1.0738 and 1.0821 after the first round of French presidential elections.

That gap was filled nearly three years later during the outset of the global pandemic.

Coincidentally, the pandemic also caused the near contract for WTI oil to turn negative and fill an outstanding price gap from 1999 at $12.03/bbl.

Nearly all FX gaps have been filled over time including EUR/CHF's crash in 2015 after the SNB’s ceiling was removed. The dollar index may be the next.

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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)

((robert.fullem@thomsonreuters.com;))