Elliott Wave Update: Recovery On Dollar Can Extend Further

1 week ago 105 views 4 min read

Grega Horvat

Analyst

Forex Analytix

Elliott Wave Update: Recovery On Dollar Can Extend Further

I hope everyone is having a good day. It’s been a while since I posted any kind of free article for our ForexAnalytix visitors, as most of our charts are reserved for premium members. However, back in January, when the dollar was trading significantly to the downside and stocks were near the highs, I highlighted the extreme short positioning on the dollar index. At the same time, the S&P 500 was trading near highs. So based on Elliott wave principles and intermarket analysis, I warned about a potential rebound in the dollar. As you know, the dollar has seen a very nice rebound over the past three months.

With the situation in the Middle East and the way US yields are moving, I think there is still a good chance that the dollar can continue higher. What is most important now is to track crude oil versus US inflation on a yearly basis. As shown on the chart, crude oil has been one of the most important indicators for inflation for quite some time. Considering how strongly crude oil has jumped in recent weeks, we can expect inflation to move back above 3%.

If this is confirmed by upcoming data, then the Fed will likely stay on hold for longer, with some even speculating about hikes. This would push US yields higher, which are now breaking out of a large triangle consolidation, suggesting that US yields may remain bullish.

This supports the view that the dollar can see more upside. In fact, this strength could appear already this week. If you look at the recent price action, the market is in a bullish impulsive phase from the January 27 low. Since impulses unfold in five waves, and if we focus on the blue wave lines, it looks like we are currently in a wave four consolidation. That suggests a final wave five higher could follow soon, possibly triggered by inflation data, news developments, or further escalation in the Middle East, which would drive safe haven demand.

Looking at opportunities, the dollar still looks attractive with higher yields and rising inflation expectations. In that case, EURUSD is worth watching on the short side, possibly back toward 1.14 once wave four is complete. I see strong resistance between 1.16 and 1.1670, which could offer attractive levels for shorts, especially while price remains below the 1.1765 short-term invalidation level.

I hope you enjoyed this read. Make sure to join us on FACE, where I will go into more detail about this wave count in one of our webinars later this week.