Reversal Up or Continuation Down Here for US Dollar

Aug 31, 2009: 2:12 PM CST

Though the major trend is down for the US Dollar Index, the $78 index level reflects a possible turning point, or major inflection level if it is strong enough to stop the onslaught of sellers.  Let’s take a look at the Weekly and Daily US Dollar Index structure to see this level up close.

US Dollar Index Weekly:

Without going into too much detail (full detail is given in this week’s edition of the “Weekly Intermarket Report” for premium subscribers), I wanted to highlight the key features in the structure.

The “ABC” is a possible Elliott Wave larger corrective count which has taken us down into the 61.8% Fibonacci retracement line from the closing lows to highs of the 2008 bottom to the 2009 top.  The level rests at $77.83 for potential support.

A break beneath the $78 level could be a major development that would argue for continuation of the downward pressure already underway in the Index – the Monthly, Weekly, and Daily trend structure all has the dollar in confirmed downtrends with price being beneath all key EMAs on all timeframes.

However, the $78.00 level could act as a “Line in the Sand” or “Last Line of Defense” for Dollar Bulls.

There’s been a positive momentum divergence off the May 2009 price lows… but let’s see that a little clearer on the Daily frame.

US Dollar index Daily:

A “Triple Swing” positive momentum divergence has formed on the swing beneath $78 (index level).

In addition, a 5-wave “Elliott fractal” structure has completed 5-waves (though I’d prefer to see a bit more ‘impulse’ on the 5th wave as labeled) into the previously mentioned key support level of $78.

All that’s left for confirmation is a break above $79 and especially above the $80 level, which would clear price above the 20 and 50 day EMA.  That would be a major signal that odds favored support holding and an upswing of short-term or intermediate term motion unfolding from here.

For now, let’s see if the $78 level is strong enough to draw in enough buyers to turn the vicious downward tide that has befallen the US Dollar Index through most of 2009.

Corey Rosenbloom, CMT
Afraid to Trade.com

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4 Comments

4 Responses to “Reversal Up or Continuation Down Here for US Dollar”

  1. Dan Says:

    Bring on the high US$ so we can make the quick money shorting commodities. :o)

  2. the99th Says:

    Not to mention that bloated Euro.

    Too bad they don't offer exchange traded CDS just yet.

  3. Bob Says:

    A reversal here would be key… The USD is the “big dog” and still the only game in town.

    Will the bearish china markets elicite enough fear to instigate a flight to quality? A rally in the USD might just sink the bulls hope for a gold breakout? And a strengthening dollar would be bad for commodities. A slide in that sector could just be the straw that breaks the back of these ongoing rallies which have run so counter to momentum divergences.

    A lot hinges here!

  4. Bob Says:

    A reversal here would be key… The USD is the “big dog” and still the only game in town.

    Will the bearish china markets elicite enough fear to instigate a flight to quality? A rally in the USD might just sink the bulls hope for a gold breakout? And a strengthening dollar would be bad for commodities. A slide in that sector could just be the straw that breaks the back of these ongoing rallies which have run so counter to momentum divergences.

    A lot hinges here!