Dollar Index Technical Forecast

The US Dollar Index may have registered a significant Intermediate Trend Reversal at 74.94 and a sustained rally above wedge resistance will signal a recovery toward 81.47 over coming weeks.

US Dollar Index (USDI), last at 75.98

October 27th, 2009

Since peaking at 89.62 in early March this year, the USDI has been declining in a 5-wave sequence. Waves 2/ and 4/ display Alternation, with Wave 2/ being a Double-Three and Wave 4/ being a simple Zigzag. Together, Waves 2/ and 4/ approximate 100%. Since the early June peak of 81.47 (interpreted as completing Wave 4/) the Dollar has been declining in what appears to be an elongated 5th-Wave Diagonal Triangle structure; wherein each leg of the Diagonal pattern truncates (coinciding with Bullish price/momentum divergence) and the final leg is almost exactly 61.8% of the first.

A sustained break of the USDI’s Descending Wedge pattern would confirm a trend Reversal and herald a probable corrective recovery over coming weeks back toward the 81.47 level but with potential as high as 84.01; being a 61.8% retracement of the entire 89.62 – 74.94 decline.

The Bottom Line: The US Dollar Index may have registered a significant Intermediate Trend Reversal at 74.94 and a sustained rally above wedge resistance will signal a recovery toward 81.47 over coming weeks.