Elliott Wave - USDX, AUD/USD

Hello Elliott Wave traders.

The U.S. dollar moved lower yesterday after the New Home sales numbers were released. Euro quickly bounced from 1.4570 for 160 pips of higher movement in the next sessions and found the temporary resistance around 1.4740. The prices went up in to area of wave that was mentioned yesterday. It is better to stay out here for a moment and wait on new signs from the market before getting involved again. After the yesterday’s new highs and quick bounce on the dollar, we checked out the dollar index for possible resistances which would push euro higher and swissy lower. Also below we have looked at the one hour chart on the aussie, which is also well correlated with dollar index and gold moves. The aussie took a slice of the weighting on the dollar index from the cad in the recent re-setting of index components, and as such we will see move volatile moves from the aussie as a consequence of trade desks mirroring the dollar index make-up.

Today's Charts

Dollar Index USDX (DXY)

Below is the weekly U.S. dollar index chart with impulsive wave counts on the downside. In the middle of 2005 the dollar was at the start of a run of weakness. Here you will find the expanding diagonal triangle in big wave 1) and then further A-B-C correction in wave 2). After that dollar index fell quickly and found support in the extended blue wave 3) at the end of 2007. This year the dollar recovered a little and made three moves up; which look like a correction move in blue wave four. The current prices are threatening the resistance area of previous wave four and also the 38.2% retracement on the Fibonacci. This is the perfect Elliot wave set-up to trade short, but a lot of traders are skeptical about it, especially when they see a breakout like this, through the upper trend line resistance. Open your Elliott wave book by Frost and Prechter on the 71st side and look for the “throw-over”; you will get an answer. So, further dollar weakness could be the case. Time will tell.

We also made a wave count below and labeled the sub-waves in the blue wave 4) that was mentioned above. We have the leading diagonal triangle in wave A, then zig-zag in wave B and the last five waves in C, which makes complete wave 4). RSI is already moving lower from 70, so traders should wait on a break through the black trend line before they will jump short.

AUD/USD

Below we have the one hour aussie chart with sub-waves in wave IV and V. The triangle that we discussed last week, pushed prices in wave C) and made the complete red wave IV at 0.8812. After that the weakness of the Australian dollar was back and the market made another five waves down to completed red wave V. In the next few days or weeks we should see a weaker dollar, so prices at least 300 pips higher would not be the surprise, if we do not forget the resistance zone at the dollar index chart. There are two divergences on the EW oscillator, which is also signaling possible move higher in the near future. Traders should be very patient right now before taking any long positions, and wait to see if we are on the right track or no.

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