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Investors Take Note: US Dollar Is Headed Upward


A rising dollar may mean falling stocks, commodities, and perhaps bonds.

In May, we pointed out that the US Dollar Index looked as though it was beginning an impulsive move upward. We suggested this would be consistent with the prospect of many other investment instruments losing value - stocks, other currencies, various commodities, and possibly bonds.

Now the Dollar Index appears to have put in wave ii of (iii), and it may be ready to spring upward in a strong "third of a third" move. If this is the case, then 90.53 would be the first likely target overhead (approximately a 9% increase from the current price).

Below, we offer some observations about the charts and the Elliott Wave counts.

On the monthly timeframe, the dollar has been finding support near the bottom edge of the channel. With the dominant 49-month cycle, the winds still favor movement upward and will do so for at least several more months. (A move need not terminate exactly at a cycle peak or a cycle low. The change in cyclical direction can be thought of more as a change in tendency.)

Note, while we believe the dollar is on its way up in an impulsive move, there still exists a short-term bearish alternative count that would have it head down to near the area of prior lows, completing an ending diagonal pattern. The short-term bearish count is shown in red on the weekly chart below.

The green count on the weekly chart shows the dollar's move out of the 2011 low as the beginning of what we think is a large upward wave 3 or possibly wave C. In this view, wave (1) of wave 3 or C took the form of a leading diagonal, and it was followed by a complex "w-x-y" corrective wave (ii). Wave (iii) is still forming, and we may have seen the completion of subwaves i and ii of wave (iii). This is our primary scenario.

In future weeks, watch the dollar's behavior with respect to the channel on the weekly chart. It found support at the end of what we have labeled wave ii in the bullish (green) count. It may later find resistance at the mid-line and the top of the channel.

The alternative short-term bearish count is shown on the weekly chart as having completed wave (iv) of an ending diagonal, which ultimately would have five waves. The first two segments of wave (v) of the diagonal would already be complete, and the only thing left would be for price to head downward in wave (c) of (v).

We call the red count short-term bearish because, after the ending diagonal pattern is complete, price would begin a lengthy climb upward. Again, the red count is an alternate scenario, second to the bullish one we presented as primary.

The daily chart offers another potential channel to watch. Note also that the CCI indicator on the daily time frame is starting to move into positive territory, which may portend a strengthening of momentum upward.

This article originally appeared on Trading on the Mark.
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