US Dollar Index Technical Analysis – 11 May 2013

The US Dollar Index has surged upwards as we had forecast. Our target was 83.75 and it has thus far reached as high as 83.51. Here’s the updated Hourly US Dollar Index Chart. In yesterday’s review, we said that the US Dollar Index needs to break above the red trend line in order to qualify as an impulsive wave three. Indeed, it broke through the trend line, came down a bit to retest the trend line and headed higher.

US Dollar Index Hourly Chart 11 May 2013

Primary View

Our target of 83.75 for US Dollar Index was based on the Elliott Wave guideline which says that wave 3 is normally 1.618 times wave 1. It could also be 1.38 times wave 1. So far, wave three has traveled roughly around 1.38 times wave 1. This gives rise to the possibility that wave three has ended here. If this is the end of wave three, that means that US Dollar Index is in wave 4.

Wave 2 retraced wave 1 by 0.618 times which is a norm. Another guideline of Elliott Wave Principle is that wave 2 and 4 would normally alternate in retracement level and length. Since wave 2 retraced wave 1 by 0.618 times, then it is likely that wave 4 would be a shallow retracement of 0.318 times wave 3. This gives us a good target of 82.85 for wave 4. Also, since wave 2 was a slow correction, wave 4 can be expected to be a quick correction. Wave 4 would then be followed by wave 5 with a target of 84.00.

There is another scenario here which is the wave three has not ended and a rise to 83.75 (which is 1.618 times wave 1) is on the cards. Either way, the bias is still bullish.

Alternate View

Since the wave 3 only progressed as far as 1.38 times wave 1, it gives rise to the possibility that this whole move is not a 1-2-3 impulsive wave. Instead it is an a-b-c corrective wave. This alternate view will be promoted as the primary view should the US Dollar Index break below 82.59. 82.59 is the end of wave 1 and as we know according to Elliott Wave Principle, wave 4 cannot overlap into wave 1 region.

Another point to note is that we also mentioned that the stock market and commodities will face downwards pressure due to a rise in US Dollar Index. The stock market is not affected much in fact, it is progressing upwards slightly. Gold, Silver and Crude Oil took a beating though before recovering slightly and we expect that trend to continue for the short term.