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US Dollar May Have Found Platform for Its Next Big Advance


Nearby dollar support means lower-risk currency trades.

As we have mentioned previously, charting the U.S. Dollar gives the trader a great advantage in trading other currencies. Normally we watch the euro (represented by the ProShares Ultra Euro ETF (NYSEARCA:ULE)) in conjunction with the US dollar, because each currency is the largest component of the valuation of the other one. However, the charts below show how the principle can also be useful when trading the Japanese yen (represented by the ProShares Ultra Yen ETF (NYSEARCA:YCL) and ProShares Trust II (NYSEARCA:YCS)) or the British pound (represnted by the Guggenheim Currency Shares British Pound Sterling Trust (NYSEARCA:FXB)).

In the big picture, the important question with the dollar is whether the low was put in during 2008. If that was the case, then the Elliott Wave structure suggests that the higher low made in early 2011 represented the end of a corrective pattern (wave '2' or 'B'), and price has already begun an impulsive wave upward. This is our primary, bullish scenario for the dollar. An alternative dollar-bearish scenario is described in an extended version of this article on our blog.

The shape and size of the dollar's corrective consolidation since early 2012 suggests price should try to find support nearby, which probably would mark the completion of a wave '(ii)' retrace. This would suggest targets for the next upward leg near 90.44 and 97.50, for a third wave or 'C' wave.

The dollar-bullish count matches well with the developments we have been expecting in the Japanese yen and the British pound. With the yen, note that the consolidation on the monthly chart is reaching a convergence, which we believe is a wave 4 triangle. The prospect of the yen breaking lower is corroborated by the introduction of downward pressure from the yen's 11-month cycle.

The British pound also appears to be on the verge of completing a triangle consolidation – in this case a b-wave triangle. Price cannot rise much farther without invalidating this scenario, and we expect it to fall away from one of the resistance levels soon.

A rising dollar also would have bearish implications for the euro and for key industrial commodities such as copper – markets which we examine in greater depth on our blog. In particular, both copper and the euro appear ready to embark on the next legs of their journey down.

This article originally appeared on Trading on the Mark.
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