Technical Analysis of the US$ Index:
Technical analysis of the US$ index reveals two basic technical reasons as to why the index should not go in a strong corrective state, even though it appears to be reaching this point of eventual inevitability. Looked at an Elliottician standpoint, the wave simply seems to be in the last leg of it motive drive. With a reasonable degree of confidence, it can be said that the price action is in wave 4, which is a corrective pattern. After this the final motive wave 5 has to ensue, which would be an upward drive for the price action and accordingly any ETF, that apes the price action of the US Dollar index. Now there are two type of correction patterns that can emerge which would shed light on the type of corrective pattern that may finally emerge in wave 4, as it can be either an ABC correction or an ABCDE correction. For a longer correction of the ABCDE type to unravel, the US economy would have to perform well during the coming 12-15months, as can be witnessed from the 1st chart. The appreciation of the index should thus finish during the last quarter of 2017. If a correction type ABC is to follow then possibly the current price action run is the final 5th wave run, which should arrest any upward appreciation during the 1st quarter of 2017. From a market response standpoint, it is clear that at least for the coming few months, the US dollar should not lose much ground against the Euro. But things would be different during 2017.
From a technical indicators perspective, what is being witnessed is that MACD is overbought which is a warning signal of a loss in momentum of the dollar index. However, the stochastic stands oversold, which has an opposing effect on the negative bias being created by the MACD. A similar situation presented itself during late 1990’s when MACD was looking down and stochastic up, which actually helped support the price action. In fact, the appreciation of the index was phenomenal. Much of this phenomenal price appreciation was attributable to the fact that possibly the wave development was a 3rd wave Elliott motive wave pattern, which further helped the price appreciation. A similar situation exists today, however, the price action is peering into the 5th wave Elliott wave pattern, so the price appreciation could be shallow.
In any case all scenarios point to an appreciable weakening in the index either during the 1st half of 2017 or the 3rd quarter.