Three months ago, while the dollar index was trading below the 90.00 mark following another selloff, we published an Elliott Wave analysis suggesting the bulls were ready to stop the bleeding and lift the index to the resistance area of 95.00. The chart below was what led us to conclude a bullish reversal was on the cards.
As visible, there was a five-wave impulse pattern from 103.82 to 88.25. According to theory, a three-wave correction in the other direction follows every impulse, so instead of joining the bear team, we though a U-turn should be expected. That was on February 27th. Оn May 29th, the USD index climbed to 95.03. Here is how its daily price chart looks today.
With 95.00 conquered, it is time to see what does the Wave principle think about the dollar index now. Unfortunately, a single answer cannot be given at the moment, because the rally from 88.25 to 95.03 could either be the entire wave (2/B) or just the first part of it – wave W) – if we assume wave (2/B) is going to evolve into a W)-X)-Y) double zigzag. Both alternatives are shown on the chart above. The good news is that in either way the resistance near 95.00 should be strong enough to cause at least a short-term decline back to the 90.00 level, where the market will have to make up its mind again.
In our opinion, it is much more likely that wave (2/B) is not over yet, because the recovery to 95.03 took roughly three months and a half, while the preceding impulse has been in progress for over 13. Usually, corrections are more time-consuming than impulses, so we believe the 90.00 support is going to give the start of another rally in wave Y), before the bears officially return in wave (3/C) down.
