close icon

DXY Bulls Should Worry as Bearish Evidence Abounds

The bulls have been in control of DXY during most of 2018 and gradually conquered more land in the first months of 2019, as well. The USD index recovered from its February 2018 low of 88.25 to as high as 98.33 last month. The bulls can really be proud with the total gain of over 1000 pips they managed to achieve.

Unfortunately, “pride goes before a fall” and “no trend lasts forever“. After such a strong strike of gains complacency can start to settle in. This can often be dangerous, especially since evidence abounds that a major bearish reversal is near.

Elliott Wave pattern makes DXY vulnerable

The daily chart above puts DXY ‘s price behavior from the top at 103.82 into Elliott Wave context. The first major reason not to join the bulls right now is the almost complete bearish 5-3 wave cycle. The decline to 88.25 can be seen as a five-wave impulse labeled 1-2-3-4-5. The sub-waves of waves 3 and 5 are also visible and since wave (iii) is extended we can recognize another impulse in its structure, as well.

DXY Bulls Cannot Hide Their Weakness Much Longer

The theory states that every impulse is followed by a correction of three waves in the opposite direction. Here, DXY seems to have drawn a textbook A-B-C zigzag correction with an ending diagonal in wave C. Once the corrective phase of the cycle is over, the larger trend resumes in the direction of the impulsive sequence.

The second reason not to trust the bulls is the fact that wave C is already knocking on the 61.8% Fibonacci level, where second waves often terminate. Wave (v) of C is likely going to make one last high before the bears return in wave (3/C) down.

And the third, but not less significant evidence supporting the bearish thesis is the strong negative divergence with the MACD. As visible, while DXY kept making new highs, the indicator reached its highest level in May 2018. This means the bulls have been slowly running out of power for the past year.

In conclusion, there is plenty of evidence that the bulls have been overstaying their welcome for a while now. If this analysis is correct, a notable bearish reversal can soon be expected in DXY. Given that wave (3/C)’s initial targets lie below the bottom of wave (1/A), we think this is definitely not the time for bravery.

Do you trade Forex? Analyses of EURUSD, USDCAD and USDJPY are included in the Elliott Wave package our subscribers will receive TODAY!



Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

Nikkei 225 Can Lose 30% in Next Corrective Wave

The Japanese Nikkei 225 reached a multi-year high of 24 448 in October 2018. The last time the index traded this high was 27 years ago, in 1991, in the aftermath of the Japanese asset bubble. However, the bulls couldn’t maintain their momentum last year, which opened the door for a decline to 18 949…

Read More »

S&P 500: Triangle Pattern Leads to New Record High

The S&P 500 reached new all-time highs on the back of better-than-feared earnings season and improved US-China trade prospects. The index closed at 3085 Thursday, bringing its 2019 tally to the impressive 23.1%. But was there a way to predict this move instead of just explaining it after the fact? To paraphrase Warren Buffett, the…

Read More »

Insurance ETF Poised for an Elliott Wave Correction

The SPDR Insurance ETF reached a new all-time high in September, helped by a solid job market, increasing wages and rising consumer confidence. The price is up 630% since the Financial Crisis low at $4.77 in March 2009. The question is, can investors trust the uptrend to continue? Regardless of what pundits say, we don’t…

Read More »

Dow Jones Sends a Warning Investors Can’t Ignore

The price movements of financial instruments form repetitive patterns, called Elliott waves. Experienced analysts try to recognize those patterns in order to prepare for the next market move. Sometimes, a pattern can indicate not only one, but the next two consecutive moves. The triangle pattern, for instance, is known to precede the last wave of…

Read More »

DAX 30 Adds to Global Recession Fears

The German DAX 30 index has been declining since early July when it reached 12 656. Last week’s news that the German economy shrank by 0.1% in the second quarter only added to global recession fears. The benchmark index of Europe’s largest economy fell to 11 266 on August 15th. Are investors’ concerns warranted? Or…

Read More »

Dare to Guess the Best Stock Market Index of 2019?

The first half of 2019 saw stock market indices around the globe rebound sharply. In the U.S., NASDAQ, DJIA and the S&P 500 are up 22.7%, 14.8% and 18.9% since the start of the year, respectively. In Europe, the German DAX and France’s CAC 40 both climbed 17.8%, UK’s FTSE 100 surged by 12% and…

Read More »

Is the Dow Jones Transports Signaling a Recession?

The Dow Jones Industrial Average usually gets the most attention, but it is the Dow Jones Transports that often gives the early signs of trouble. Transport and delivery companies are the first to find out when there is a slowdown in global trade. And in some cases, a slowdown evolves into a full-blown recession. Despite…

Read More »

More analyses