An interesting potential reversal is underway in the US Dollar Index, which could give a boost to commodity prices in the short term.  Let’s look at this development, and also a potentially complete Elliott Wave Impulse graph of the Dollar Index.

Dollar Index Daily:

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The US Dollar Index has surged steadily from its April bottom to a peak of $88.00 earlier in November.  Price is now forming complex momentum divergences and potentially has completed a full Elliott Wave Impulse to the upside.

Notice how the key 20 and 50 day EMAs have contained price movement and served both as support and as potential low-risk entries into a moving trend.  The rising 20 day EMA has been broken on a closing basis officially today, so the structure could be changing and we need to be aware of this shift.

The next logical ‘test’ or magnet zone price will likely reach is the $84.00 level, which represents the rising 50 day EMA.  Failing this level – which may be more likely than not – price would fall further, perhaps to test the $80.00 level which represented the September swing high (old resistance becomes new support).

Also, I wanted to highlight the complex divergence pattern in the 3/10 momentum oscillator.  It appears that the oscillator (focus only on the black line) has formed a sort of head and shoulders pattern underneath price, which could hint at further weakness to come.  Regardless of this complex interpretation, one can see – provided you look at the red arrow – that the most recent price high into $88.000 has formed a significant negative momentum divergence that is currently unwinding with declining price.

Combine this fact with the apperance of positive momentum divergences on various commodities (crude oil included), and we could have a significant cross-market shift underway which requires your further attention and analysis.

Let’s take a look at a possible Elliott Wave Analysis of the US Dollar Index (Daily Chart).

Dollar Index Possible Elliott Wave Count:

Also, notice how momentum divergences play into the Elliott count.  Oftentimes, negative momentum divergences occur in 5th Waves, which is a further sign of weakness (and non-confirmation of higher prices).

That being said, Wave 1 was a rather complex ‘bottoming’ wave that I highlighed in the past (of course I didn’t know it was Wave 1 then) as having multiple swing divergences, and it appeared that momentum was building to the upside.

Price then formed a rather standard Wave 2 correction becfore bottoming in July, slighly higher than the April lows, which also locked in a ‘higher low’ in terms of price structure.

The uptrend was officially confirmed as price broke above its June high, having taken out the most recent swing high along with forming a higher low – this was your highest probability entry and created what I like to call the “Sweet Spot” structural trade.  This structure formed the base of the Third Wave Impulse up to September highs, which also created a negative momentum divergence.

Wave 4 was a rather sharp (steep) ‘abc’ corrective wave down to a $76.00 level price low.

Price then topped the $80 level, which confirmed we were likely in the structural Wave 5, which itself sub-divided into a (relatively) clean five-wave impulse before forming the current negative momentum divergence and potential ‘topping’ pattern we see now.

Continue to study this with your own interpretation, but be alert that a potential shift could be occurring quickly.

Corey Rosenbloom
Afraid to Trade.com