It has been a good week for the USD Index, which managed to climb to a new high on Friday. But even the strongest of trends are interrupted by corrections. Should traders be preparing for one such correction now?
“We should expect another rally to take prices higher, probably above the 87.00 mark.” This excerpt is taken from an article, called “USD Index aiming at 87?”, which we published on October 18th. The USD Index was trading around 85.30 then, but we were expecting wave 5 to the upside to take prices above 87.00. The next chart will show you the US dollar index as it was two weeks ago.
According to the Elliott Wave Principle, trends move in five-wave sequences, called “impulses”. That is why we assumed there should be another rally soon, which was supposed to reach a new high. There is an updated chart below, which will give you an idea of what happened after that forecast.
As visible, Friday’s closing price is 87.01. In intraday trading the USD Index rose to as high as 87.225. Both figures stand higher than the top of wave 3, which tells us, that the minimum requirements for an impulsive wave are already met. Of course, prices could go a little higher next week, but this is definitely not the time to go long, because chances are good that the trend is in its final stages. The Wave Principle states that every impulse is followed by a three-wave correction in the opposite direction. So, once wave 5 eventually ends, we should prepare for a new corrective decline, which would probably take the USD Index back down to the level, where wave 4 ended and wave 5 started – between 84 and 85.
