Technical Analysis of the Dollar Index:
It remains difficult to decipher the relative strength of the US dollar when its index is viewed. What appears to be the case is the emergence of a fulcrum like position on the 1 box reversal Point and Figure (PNF) chart, yet we don’t see a catapult emerging out of the price action. It would be incorrect to take a long position on a mere double top buy formation as there is a lack of adequate evidence to show whether the price action is bullish. Yes, when we review the 3 box PNF chart, an upward momentum is witnessed. There are a couple of reasons for the positive momentum, firstly being that the price action has not pierced the 45-degree support line. In fact, all the support lines S1, S2 and S3 are adding weight to the assumption that there is ample support for the US$ against a basket of currencies. A valid and an activate target of 102 with a risk reward ratio of almost 2 exhibits that most likely it should be reached. But the question is not of the price target is achievable but rather the time zone over which it will be achieved. At least for now this number is a far cry and only a distant possibility, if not a remote probability.
When we witness the day duration candlestick chart we see a large bearish engulfing pattern, which is indicating that the current upward momentum has come to a halt. This seems correct, given that the price action is at the upper part of the channel and it is a very realistic possibility that it will now bounce down. The technical indicator also seems to be in congruence with the candlestick pattern as both MACD and Stochastic remain highly oversold and it is at this level that price action breakdown should occur in all probability. Yet again the issue is of timing and not that of imminence? While the bearish pattern and oversold indicators do point to an immediate downturn in the index, however, as you can see that in the 5th wave, multiple rising windows seem to have made the price appreciation rather brisk as the index has climbed quickly. But this could also mean that these rising widows could actually act as buffers preventing the index from not falling down too quickly. At least what we can witness on the cycle Elliott Wave pattern is that some appreciation is left which could allow for it to reach the 100 mark. The would mean that the stochastic could again go in an oversold position on the daily chart and on the rebound, a congruence of MACD and stochastic would allow for the attainment of this level. Having said that price breakdown roughly coincides with the timing of the general election outcome which could send bearish ripples in the market, only allowing it to re-stabilize and continue charting its appreciation course until an eventual breakdown should be brought in via recessionary conditions imposed via business cycle slowdown. But this is still a far-flung notion, yet a very realistic one when reviewed from a term structure standpoint.
Also, there are bearish implications from an Inter-market standpoint. Given the US dollars’ negative correlation with crude oil, a successful OPEC deal, could actually have bearish implications for the US dollar. But still, primary cycle Elliott Wave analysis don’t really bode well for the crude oil market as well.