Is That It for the USD Bull?

January 31, 2017 5:18AM CST

USD INDEX

We've advocated for the secular bull market in the Index since 3Q14.  But after today's relapse below last week's 99.79 low, we have reason to believe this secular bull may over or at least vulnerable to a significant correction that may span months or even quarters.  Obviously, today's relapse or even the past month's decline from 03-Jan's 103.82 high is of a scale grossly insufficient to CONCLUDE a major peak.  But in the analysis below, we will provide the credible threats to the bull that will remain in place until and unless the market recoups this month's 103.82 high that we're considered our new key risk parameter.

First of all and from a very short-term perspective the 240-min chart below shows the market's resumption today of the slide from 03-Jan's 103.82 high.  This resumed break negates Thur's bullish divergence in short-term momentum, reaffirms the slide and leaves yesterday's 101.02 high in its wake as the latest smaller-degree corrective high and new short-term risk parameter the market needs to recoup to arrest the slide and expose at least an interim rebound.  In lieu of such 101.02+ strength AT LEAST the intermediate-term trend is down and should not surprise by its continuance or acceleration.

Dollar Index 240 min Chart

Dollar Index Daily Chart

Just a quick glance at the daily chart above is needed to see that the extent and IMPULSIVENESS of this month;s decline is sufficient to break the broader uptrend from 18Aug16's 94.07 low.  More importantly however, the weekly chart below shows the market's failure to sustain Nov-Dec gains above a ton of former resistance from the general 100.00-area.  Yes, the market has thus far only retraced to the area around the Fibonacci minimum (99.27) 38.2% retrace of 2016's entire rally from 91.92 to 103.82, so it'd be premature to rule out a larger-degree correction within the multi-year secular advance.  But also indicated in this weekly chart is historically frothy bullish sentiment typical of major peak/reversal environments.

Dollar Index Weekly Chart

Lastly and as a result of this month;s relapse, it's remarkable to note that 5-1/2-YEAR rally from May'11's 72.69 low come within a mere half-point of its (103.32) 1.618 progression relationship to 2008-09's preceding 70.70 - 89.62 rally in what arguably is a COMPLETE 5-wave Elliott sequence as labeled.  can we CONCLUDE the end of the secular USD bull after this month's relatively piddly relapse?  Of course not.  But until and unless the market recoups a very specific market-defined high and key risk parameter at 103.82 , we are considering the first two- momentum failure and impulsive behavior in the direction of the new trend- of our three reversal requirements satisfied.

We will be watchful for what will very likely be a rebuttal of this month's decline, and potentially an extensive one.  But if this recovery unfolds in a more labored, 3-wave manner and falls shy of Jan's 103.82 high, we will take such behavior as contributing to a peak/reversal-threat environment in the USD that may be massive in scope.  These issues considered, all previously recommended bullish policy and exposure is advised to be covered and a neutral/sideline position is advised for the time being.  A cautious bearish policy is OK but only with acceptance of yesterday's 101.02 high as the short-term risk parameter from which such a play can be objectively based and managed.

Dollar Index Quarterly Chart

EURUSD

Given the large extent to which the Euro comprises the USD Index, it stands to reason that a major base/reversal argument may now be able to be made for the Euro.  Today's recovery above last week's 1.0775 high clearly reaffirms the past month's developing uptrend and negates our recent bearish punt recommended in Fri's Trading Strategies Blog .  This resumed strength leaves yesterday's 1.0620 low in its wake as the latest smaller-degree corrective low and new short-term risk parameter the market is now required to fail below to stem the rally and expose at least an interim correction lower.

Euro Index 240 min Chart

Euro Index Daily Chart

While seemingly relatively minor, today's resumption of this month's recovery exposes a base/reversal environment that could be major in scope for the following reasons shown in the daily close-only chart above and weekly log scale chart below:

  • a confirmed bullish divergence in momentum above 05-Dec's 1.0764 high that breaks the major downtrend from last year's high
  • trendy, impulsive behavior up
  • the market's gross failure to sustain Dec'16 losses below the ton of 1.04-to-1.05-handle support from 2015
  • historically bearish sentiment accorded the Euro.

While this compilation of factors warns of a major base/reversal environment, the most important by-product is the market's definition of 03-Jan's 1.0341 low as THE prospective end to the secular bear and new key risk parameter the market needs to break to negate such a call.

Euro Index Weekly Chart

Here too, we fully anticipate a (B- or 2nd-Wave) corrective rebuttal to this month's rally, and one that may be extensive, retracing more than 61.8%.  But until and unless this market break below 1.0341 , traders are advised to acknowledge the prospect for a base/reversal threat that could be massive in scope.  In sum, a cautious bullish policy from the 1.0775-area OB is OK with a failure below 1.0620 required to negate this specific count and expose a steeper correction lower that may offer a preferred risk/reward buying opportunity (from perhaps the 1.0500-area OB) that could prove to be a long-term play.

Euro Index Monthly Chart

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