US Dollar Index Technical Analysis – 15 May 2013

Primary View

Our target of 83.75 for US Dollar Index has been reached. The 83.75 level is 1.618 times of wave 1 as shown in the below Hourly US Dollar Index Chart. This is a normal relationship according to Elliott Wave Theory. This paves the way for a corrective wave 4. The fourth wave normally is shallow and retraces 0.318 times wave three. This gives us a target of 83.05. It is also normal for wave 4 to retrace up to the sub wave 4 of the move. The sub wave 4 ended at 83.04. Both of these guidelines point to a retracement to 83.00 region.

US Dollar Index Hourly Chart 15 May 2013

Wave 4 will be followed by wave 5. Usually, wave 5 will be equal to wave 1. This guideline gives us a target of 84.25 for wave 5. Since wave 2 was zig-zag in nature, we can expect wave 4 to be either a flat or a triangle. Wave 2 progressed in a slow manner. By the guideline of alternation, we can anticipate a quick wave 4. Triangle is a slow pattern and so this points to a likely hood of a flat pattern for wave 4. A flat is a 3-3-5 formation.

Here’s the Daily US Dollar Index Chart which shows the move so far on the daily time scale. There are two points to note in this chart. The first is that the MACD has turned up and has broken through the zero line to go into positive territory. The second point is that the blue trend line (of the contracting triangle) has been broken to the upside as well.

US Dollar Index Daily Chart 15 May 2013

Alternate View

The MACD is pointing to a possibility that the impulsive move to the upside is complete. MACD is one of the most reliable indicators that I use frequently to confirm the wave count. Normally there is a divergence in the MACD between the tops of wave 3 and wave 5 which can be seen in the Hourly Chart of US Dollar Index. If indeed the move to the upside is over, the US Dollar Index can be expected to head lower to 82.30 region for a correction.

Either way, the bias has now turned to the downside. 83.00 is the level to watch. If that breaks, the US Dollar Index will likely head lower to 82.30.