Wave Analysis of USD (by Avi Gilburt)

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Due to the seemingly broken correlations that many have been witnessing regarding the USD, it has raised many questions regarding the direction of the USD. Many people believe that the USD is headed much higher in the near term. This mass confusion seems to be due to the fact that the old correlations between the USD and so-called “risk” assets are no longer holding as true. But, that may not continue for very long.

However, the USD has been acting exactly as expected within our Elliott Wave analysis over the last several months, and almost to the penny. As of late, the USD bottomed exactly where we expected it would in late February, and then topped exactly where we expected it would a little over a week ago.

Based upon this pattern, the USD is now setting up for a strong decline that will probably begin within the next week. However, it may still have one more small upwards retracement before its next expected precipitous drop.

While a retracement back to the 80.40 region still possible, it has become less likely at this point in time, as the USD may have topped in wave ii of wave 3 down within its .382 retracement in the 80.20 region in the futures. Each of the USD consolidations/retracements have been quite weak since hitting our last top, which is supportive of our position of a weak dollar which is destined for much lower levels within the next two months.

Clearly, any move over the 81.16 level would invalidate this pattern. However, the greater likelihood is that we will see one more retracement within the next week, which will set up a strong move down in the USD which will initially target the 77.45 region.

For those that track Heads & Shoulders patterns, we have been pointing out this possible set up for several months now. As you can see from the attached chart, the left shoulder started in the region represented by the 1.382 extension for this move down in a 3rd wave, which is also our next larger target for this decline in the USD over the next several months.

Originally published on ElliottWaveTrader.net