Reversal Up or Continuation Down—What’s Next for USD?

09/02/2009 12:01 am EST

Focus: FOREX

Corey Rosenbloom

Founder and President, Afraid to Trade

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:


Click to Enlarge

Without going into too much detail, 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 have the dollar in confirmed downtrends with price beneath all key EMAs on all time frames.

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:


Click to Enlarge

A triple swing positive momentum divergence has formed on the swing beneath $78 (index level). In addition, a five-wave Elliott fractal structure has completed five waves (though I’d prefer to see a bit more impulse on the fifth 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- 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.

By Corey Rosenbloom of AfraidToTrade.com

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