RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Currencies

Bottom in USD Index?

Posted 09/21/2017 8:13AM CT | RJO Market Insights

As we discussed in yesterday afternoon’s Technical Webcast on the peak/reversal threats developing in the Euro and British Pound, we cannot conclude a long-term reversal from shorter-term technical events.  However, the reversal of 10,000 miles begins with a single step, and yesterday afternoon’s recovery and poke above 14-Sep’s 92.66 initial counter-trend high in the USD Index may be such a step.  This resumption of last week’s rally leaves yesterday’s 91.52 low in its wake as a smaller-degree corrective low the market must now relapse below to render the recovery attempt from 08-Sep’s 91.01 low a 3-wave and thus corrective affair consistent with a broader bearish count.  Until such sub-91.52 weakness is proven however, there’s no way to know that this current rally from yesterday’s 91.52 low isn’t the a 3rd-Wave of a new, impulsive move higher that, for ancillary reasons we’ll discuss below, could morph into a major correction or reversal of 2017’s entire decline.  In this specific regard we are considering 91.50 as our new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can now be objectively based and managed.

Dollar Index 240 min Chart

Dollar Index Daily Chart

The confirmed bullish divergence in daily momentum above is of a relatively small scale, allowing us only to conclude 08-Sep’s 91.01 low as the end of the downtrend from 16-Aug’s 94.15 next larger-degree corrective high.  Commensurately larger-degree proof of strength above this 94.15 high and our long-term risk parameter remains required to break this year’s major downtrend and conclude 08-Sep’s 91.01 low as the END of a major 5-wave Elliott sequence down from 03-Jan’s 103.82 high.  Indeed, thus far the market has only recovered to an area of former support around the 92.70-area from early-Aug that cannot be ignored as a new resistance candidate.

However, we believe the combination of:

  • the developing potential for a bullish divergence in WEEKLY momentum below (confirmed above 94.15)
  • the lowest Bullish Consensus (marketvane.net) reading (54%) in three years
  • the prospect of a complete 5-wave decline from the Jan high and
  • the Fibonacci progression fact that 08-Sep’s low fell just 16 pips shy of the (90.85) 2.618 progression of Jan’s 103.82 – 99.23 1st-Wave decline from 02-Mar’s 102.26 high

is a powerful one that warns of a base/reversal-threat environment that could be major in scope.  This market has experienced an 8-month, near-10% decline this year.  Even a Fibonacci minimum 38.2% correction could span months and produce prices in the 95.70-area.  But given the magnitude of what we believe is only the initial A- or 1st-Wave counter to what has been an 8-YEAR secular bull in the USD, a much more extensive corrective rebuttal in terms of both price AND TIME should not come as a surprise at all.

These issues considered, shorter-term traders are advised to cover all previously recommended bearish exposure and move to a cautious bullish policy and exposure from the current 92.50-area OB with a failure below 91.50 required to negate this call and warrant its cover.  Longer-term players are advised to pare bearish exposure to more conservative levels and jettison the position altogether on proof of further strength above 94.15.

Dollar Index Weekly Chart

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