Long Term Structure of the US Dollar Index

Dec 21, 2008: 10:02 PM CST

A lot of us are getting caught up in the recent strength… now weakness… in the US Dollar Index, but some may have forgotten the long term structure that overlays the current price movements.  Let’s take a look at the US Dollar Index from 1984 to present and try do determine an appropriate backdrop from which to characterize the most recent price action.

US Dollar Monthly Chart from 1984:

Despite a healthy move from 1995 to 2001, the US Dollar Index actually has been in a large scale downtrend from whence the data was available on this chart.  I didn’t classify every price swing, but one need only look at the larger structure to see the current up-move (and it was a big one) was a mere retracement against the prevailing, larger down-trend.

The moving averages are in the most bearish orientation possible, and price is currently failing to maintain support above these averages.  It will take further basing here – or further price appreciation – to change this powerful down-trend structure.

Let’s zoom the monthly chart into the period from 2000 to 2008, which roughly corresponded with the years of the Bush Administration.

US Dollar Monthly Chart from 2000:

Price peaked officially in 2001, though price attempted one more swing to the upside in early 2002, forming a sort of “Three Push” or triple-top pattern on a massive negative momentum divergence.  So began the sweeping downtrend we are experiencing to this day.

It is possible that we are either experiencing or completing Wave 4 of a larger down-Elliott Impulse, which would imply that eventually lower index values are yet to come.  I do want to note the new momentum high that set-up recently as price broke above the falling 50 month EMA – while bullish, price has failed to realize a new swing high, and the large-scale downtrend is still in full force with absolutely no sign of reversing (to reverse it, we would need to see price put in a higher high and a higher low and break above the 50 month EMA).

Price also has fallen short of the large scale 38.2% Fibonacci retracement of the 2000 peak to the 2008 lows, which stands at roughly $90.00.

I will say that price has met its objectives on the daily and weekly charts (in terms of prior support, Fibonacci levels, and EMA support).  There could be a short-term rally in store, but ultimately, no signs are pointing to renewed life yet on the larger monthly time frame.

By the way, a weaker Dollar is not necessarily bad across the board; in fact, a weaker dollar helps US Multinational corporations such as McDonalds (MCD) and Caterpillar (CAT), as well as boosts commodity-based companies and commodity prices.  A weaker dollar can also boost tourism to the US as travelers from foreign countries take advantage of the relative strength of their home currency.  That being said, a weaker dollar hurts smaller companies and US tourists who travel outside the USA.

Continue to keep watching the US Dollar Index closely, as well as the other interrelated commodity markets for continued price clues as they develop.

The Market Club does a good job of following FOREX and currency trends, as well as commodity contracts.  The two-month trial offer is still good so please take advantage of it if you have not done so already.

Corey Rosenbloom
Afraid to Trade.com

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  • Kanike Sridevi85

    Thank you  sir for providing this kind of information.I'ii do so.

      Currency Converter Dollars to Poundst

  • Man,

    I'll do so - thank you for the inspiration!

  • Ca you also do a analysis on EURO and GBP for long term similar to USD.

    Also can you explain the relation between them?

  • Andrew Stanton

    Two observations. The monthly charts show structures at such a large scale that it is almost academic since it is difficult to invest let alone trade in that time frame. I think currencies and interest rates have the same problem that commodities have in that they do not count the way equities do. Prechter talks about it in the commodities section of chapter 6 of Elliott Wave Principle. Since the decline to 2008 was a 3 wave structure, the rally from that low could be a continuation of the larger correction that ends up as a 3 wave B, C, X or Y or a five wave C OR the beginning of a new impulse wave up; I see all those as potential counts. The joy of Elliott corrections!

  • Andrew,

    I'd figured the recent move was part of a corrective phase but couldn't get the waves to play out like I expected. Your count makes sense. It makes for a fiercely bloody A wave down though.

    I initially figured we had a completed ABC into the 2008 lows but that was hard to fit into the larger picture and also keep in line with what's happening currently.

    It may indeed be early, but do you think we could be starting a fresh new Elliott Impulse up?

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