Looking at this Daily chart of USD index – ticker symbol DXY a few general observations are noted. DXY is in an obvious downtrend. 92-91 proved to be a very hard level supporting price for approx. 3 months. Finally, price exploded through the level and provided many closes below the 91 level on large time frames.
Now that lower lows are confirmed it is time for the market to pullback into old support as part of its verification process. Wave analysis helps highlight the general moves. Forgive me the waves are not perfect, but I feel they are good enough.
Long term we have made a substantial move out of a coiled range. This would definitely qualify as the start of a new large cycle impulse wave count.
Large cycle wave 1 inner structure is completed by two impulse waves back to back. We are on our way to completing long term wave 2 as seen by the blue waves but understanding of wave logic we should account for alternation and do not expect another back to back impulse pattern in the short term.
This leads us to where the market is presently. As of the close of market Friday USD looks a tad confirming my suspicion we are in a correction phase that will be equal to the first correction which not only satisfies the alternation issue but means our next impulse move down should be after a 3-wave correction occurs. This action would also confirm a verification that old support at 92-91 level has become overhead resistance.
So If DXY moves up to 92-91 level like I suspect I will be watching diligently for long term short positions. If the most aggressive outcome occurs and price runs down to test these lows I will also be watching for short term shorts.
Be warned if DXY has a Weekly close above 93 the wave counts and this analysis are no longer valid.
Long-term if the market moves as anticipated and the wave counts add up we should be due for 84-83 area to complete a long-term 3 wave pattern or potentially a 5 wave impulse down to high 70s
Midterm its possible we see rejection in the 92-91 levels as one impulse count closes and corrects.
Short term we move to 91 or break down below 88.50
In conclusion This means the EURUSD and all other XXX/USD currencies are midterm are but long-term .
USDCAD and all other USD/XXX currencies are midterm but long-term .
Understanding the forces of the USD is the most important factor when trading FX. If you’re firm on your direction of DXY you stand a much better chance of choosing the best opportunities out of our basket of USD valued currencies and ultimately being a successful forex trader.
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Disclaimer: Oanda data shown. Material is educational only. Trade at your own risk!