Tuesday, October 25, 2016 11:10 AM EDT
After the weekly breakout at 96.50, the Dollar index has managed to reach very close to the 99 level. Dollar strength remains impressive supported by increased chances of a rate hike in December and by the demise of the Euro. Technically speaking the Dollar index is approaching important resistance levels (at 99.50 the upper channel resistance) and is also providing bearish divergence signals warning for an impending pull back.
(Click on image to enlarge)
(Click on image to enlarge)
In the 4 hour chart, the Dollar index remains inside the bullish channel and above the Ichimoku cloud. However, both RSI and Stochastic oscillator are giving bearish divergence signals. Soon the bullish channel will be broken and the Ichimoku cloud support will be tested. In the first (weekly) chart, the index is trading inside a trading range and is approaching the upper boundary of the range. This is the 99.50 level where important resistance is found. I do not believe we will reach that level, instead, I expect a reversal to occur sooner. Important weekly support is at 96-95. As long as the Dollar index is above this area the expected pullback could be a buying opportunity. However, Elliott wave wise the form of the rise is not impulsive. In other words, the form of the rise from 91.90 makes me believe that we are still in a corrective phase and that this uptrend could reverse into a bigger correction that will challenge the lower channel boundary.
What could lead to such Dollar weakness? ECB potential tapering of the QE program from December and postponing the rate hike by Yellen could be good enough reasons for a possible sell-off in the Dollar index. The devaluation of YUAN and the result of the USA elections could also play a big part on the decision-making process for both FED and ECB regarding the big questions regarding their strategy ahead.
One thing, however, is common regardless of the bigger picture. A pull back towards 96.50-97 is highly probable from current levels or a little bit higher. Bulls need to be cautious. We still have no bearish reversal confirmation. I’m short the Dollar index.
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