A Quick Large Scale Elliott Wave View of the US Dollar Index

Feb 16, 2009: 8:31 PM CST

With a new week upon us and the broader markets finely balanced between key inflection points, I thought it might be a good idea to take a longer-term view, using Elliott Wave, on the US Dollar Index.

US Dollar Monthly:


(You’ll need to click for a larger view)

I’ve fractalized the count starting back with 1993 to present.  By looking backwards, we can glean a possible insight into what might be in store for the Dollar (from a technical standpoint).

The Index peaked in 2001 prior to a major slide that has carried us from $120 to $71 from 2001 – 2008.  All politics aside, the years of the Bush Administration years will be synonomous with a major decline in the US Dollar Index.  That benefits large-cap corporations and is beneficial for other reasons, but more often than not, a stronger currency is preferred to a weaker one.

Back to the charts, it looks like we’ve completed an ABC Zig-Zag pattern to the downside, with price forming a momentum divergence into the lows of 2008 which preceded the price reversal we’re experiencing currently.

Structurally, price is above the 20 and 50 month EMAs, though the EMAs officially are in the ‘most bearish orientation possible’ at the moment.

The momentum oscillator registered a new monthly momentum high, which is a sign of strength (and often occurs as price breaks to the upside in a possible Wave 1 Structure).

Speaking of Elliott, it seems the Dollar Index may be in one of two junctures:

First, it could be completing Wave 1 to the upside, where we should expect Wave 2 down yet to come or

Second, it could have already completed Wave 2 recently into the $80 price lows, and be getting ready to launch higher into the powerful 3rd Wave.

I’m not ready to make the official call yet so deeper analysis is required on your part.

Leaving Elliott aside, there would likely be strong support beneath price as the key 20 and 50 EMAs should be expected to provide support should there be any further downside in the Index (that’s the $80 to $82.50 levels).

From an Educational standpoint, notice the two momentum divergences that formed the “Three Push” pattern (triple momentum swing divergence) in 2000 – 2002 and then from 2003 – 2005.  It’s quite interesting to see two back-to-back examples of this concept on the same chart.

(Technical note – the Circled “A” Wave should actually have been placed beneath the “5” in 2004, denoting a more proper location for when the “A” Wave ended, which would make the “B” Corrective Wave an “Expanded Flat.”)

Corey Rosenbloom
Afraid to Trade.com

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2 Comments

2 Responses to “A Quick Large Scale Elliott Wave View of the US Dollar Index”

  1. David Palmiter Says:

    Excellent work on Elliot Wave-
    Have you (or would you be willing to?) show us a weekly Elliot Wave count on the S&P. I’ve seen other weekly counts that project that the wave 5 on the daily as you show is the wave 3 on the weekly…..very bearish implications.
    Thanks

  2. Corey Rosenbloom Says:

    David,

    I posted today (mid-day) on the daily S&P 500 structure and conveniently side-stepped that question (Which 3rd wave are we in).

    I toggle back and forth between the two counts (that we’re still in major 3 or that we’re in the middle of major 5) but either way you look at it, once we hit new lows and finish the final 5th wave (whichever it is) then we’re in for a big ABC correction up and we can then assess at that point which count is more likely.

    For the time being, both have the same implications short-term.